Capital Markets (ECM / DCM)
A 10-year bond is issued at par with a 5% annual coupon. Benchmark yields then rise 100 bps. Roughly what happens to the price, and why?
Model answer
The price falls below par. Intuition: the bond pays a fixed 5%, but new comparable bonds now yield ~6%, so the old bond is worth less — its price drops so its yield rises to match the market.…
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