Can someone please help me here and let me know if my understanding regarding bond yield is correct
So, as per my understanding bond yield is nothing but the rate of return which we would get on the bond.
Now, due to economic condition, changes in the interest rate or other factors the bond price might trade at high/low price then the actual bond price at the time of purchase.
For example : A bond issued at par $ 1000, 5% coupon rate, Maturity - 20 years. So, at the time of issuance the yield and coupon rate both would be 5%…
Now, after 10 years, the bondholder wants to sell the bond.
At the time of sale, the yield of the similar bonds is being traded at 6% in the market. The Coupon Rate of the bond which needs to be sold is lower then the market yield rate. Since, coupon is fixed we cannot make any adjustments for the coupon. hence, we would lower the bond price to match up with the yield offered in the market…