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Bond Value Theorem
Bond Value Theorem
Bond Value Theorem
The market price of the bond will be equal to the face value if the YTM= Coupon rate
The market price of the bond will fall below or beyond the face value, if YTM is greater than coupon rate.
If YTM is less than coupon rate, the market value will increase than the face value.
Interest rate sensitivity is more incase of bond with long term maturity than the bond with short term maturity.
Though bonds are traded at discount or premium, at the time of maturity it will be in par value.
The capital gain due to fall in yield will also be higher than the capital loss
% changes in the price of the bond increases at a diminishing rate as the YTM inversed.