How can one find the market price of a bond given its yield to maturity and find a bond's yield given its price? Why do prices and yields vary inversely?

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How can one find the market price of a bond given its yield to maturity and find a bond's yield given its price? Why do prices and yields vary inversely?




Answer: Bonds are valued by discounting the coupon payments and the final repayment by the yield to maturity on comparable bonds. The bond payments discounted at the bond's yield to maturity equal the bond price. You may also start with the bond price and ask what interest rate the bond offers. This interest rate that equates the present value of bond payments to the bond price is the yield to maturity. Because present values are lower when discount rates are higher, price and yield to maturity vary inversely.

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