Question

If the coupon rate of debenture is increased then its YTM will
a)decrease
b)increase
c)remain same
d)fluctuate

Answer 1

Heya user!

YTM will remain same.

Answer 2

Answer is option (b) increase.

Coupon rate of is the actual amount of interest that is profited from the debenture/bond.

Yield to Maturity (YTM) is the total amount that is estimated as a return if the bond or debenture is maintained until it attains maturity.

At face value, the yield and coupon rate are equal.

YTM = interest income / face value of bond

Interest income is calculated at the coupon rate. So, increase in coupon rate increases YTM.

But, the yield and the bond price are inversely proportional.