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9 May, 03:51

Explain the relationship that exists between the coupon interest rate and yield to maturity and the par value and market value of a bond. (Select the best answer below.) A. The market value of the bond approaches its par value as the time to maturity declines. The yield to maturity approaches the coupon interest rate as the time to maturity increases. B. The market value of the bond approaches its par value as the time to maturity increases. The yield to maturity approaches the coupon interest rate as the time to maturity increases. C. The market value of the bond approaches its par value as the time to maturity increases. The yield to maturity approaches the coupon interest rate as the time to maturity declines. D. The market value of the bond approaches its par value as the time to maturity declines. The yield to maturity approaches the coupon interest rate as the time to maturity declines.

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  1. 9 May, 04:00
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    D. The market value of the bond approaches its par value as the time to maturity declines. The yield to maturity approaches the coupon interest rate as the time to maturity declines.

    Explanation:

    One explanation of the relationship that exists between the coupon interest rate and yield to maturity and the par value and market value of a bond, is that the market value of the bond approaches its par value as the time to maturity declines. The yield to maturity approaches the coupon interest rate as the time to maturity declines.

    According to the definition of yield to maturity, it takes into consideration the coupon rate (i. e. the interest amount earned per year) for the number of years left to maturity, it is often higher because it treats the amount earned each year as being re-invested.

    Therefore the amount of yield to maturity will fall as the time to maturity nears and will approach the coupon rate

    Secondly, A bond's par value is the dollar amount it will be worth when it reaches maturity.

    Before its maturity date, the bond may sell for more than par value on the secondary market as the yield it pays becomes more attractive to buyers.

    Therefore the difference between par value and market value is the yield. hence as maturity nears, yield to maturity falls and market value approaches par value because the bond is what its par upon maturity.
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