Air Jet Best Parts Inc - Coursework Example

The reason for it is the lower effective annual rate which Regions Best as offered the company. Their EAR is fifty basis point lower than National First which is a substantial ground to make this decision. When the coupon rate increases, the yield to maturity will rise. The bond will be attractive for the investors which will push the demand for bond upwards and the price of the bond will rise. This will result in decreasing yield to maturity to the point that it matches your required rate of return.

When the YTM decreases, the investors will not find it lucrative to hold the bond as their required rate of return would be higher than the YTM. This will lead to increased supply of the bond which will eventually result in decreasing prices. When the date to maturity increases then the maturity risk is subsequently increased. This will increase an investor’s required rate of return for an investor. Therefore, it will result in a decrease in the price of the bond to push YTM up and match the increased required rate of return.

Bond prices are depended on the interest rate prevalent during the period. An investor’s required rate of return is dependent on the interest rate level during the period. Bond prices are inversely proportional to the interest rates. As interest rate rises, the bond prices will fall and vice versa. For Greece, the interest rate is high in that region which has pushed the required rate of return higher and subsequently decreased the yield to maturity. In order to match the required rate of return, the bond prices should be low.

On the other hand, Germany has kept their interest rates lower in comparison to Greece. This has reserved the investor’s to demand a lower return for their investment. The lower required rate of return pushes the yield to maturity upwards and hence, the bond prices will surge in that