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Q: 4 If the security in problem3sold for 4000 is the yield to maturity greater or less than 10 percent Why?
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Why is the remaining time to maturity an important factor in evaluating the impact of a change in yield to maturity on bond prices?

The longer the time period remaining to maturity, the greater the impact of a difference between the rate the bond is paying and the current yield to maturity (required rate of return). For example, a two percent ($20) differential is not very significant for one year, but very significant for 20 years. In the latter case, it will have a much greater effect on the bond price.


Why is the remaining time to maturity an important factor in evaluating impact of a change in yield to maturity on bond prices?

The longer the time period remaining to maturity, the greater the impact of a difference between the rate the bond is paying and the current yield to maturity (required rate of return). For example, a two percent ($20) differential is not very significant for one year, but very significant for 20 years. In the latter case, it will have a much greater effect on the bond price.


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