Why if a bond price increases the yield of maturity decrease?

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1110853

2026-08-04 07:55

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When a bond's price increases, its yield to maturity (YTM) decreases because YTM represents the return an investor can expect if they hold the bond until maturity. If the bond's price rises, the fixed interest payments (coupons) become a smaller percentage of the higher price, leading to a lower yield. Essentially, as the price paid for the bond increases, the effective return on that investment decreases relative to the fixed cash flows provided by the bond.

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