What happens to the bond price if the Gross Redemption Yield (GRY) is less than the coupon rate?

When the Gross Redemption Yield (GRY) is less than the coupon rate, it indicates that the yield an investor would receive if they held the bond to maturity is lower than the income the bond generates through its coupon payments. This scenario creates higher demand for the bond, as investors are attracted to the higher coupon payments compared to what they could earn elsewhere in the market.

As a result of this increased demand, the price of the bond will rise above its redemption value. This phenomenon reflects the inverse relationship between bond prices and yields; when the coupon rate surpasses the GRY, the bond becomes more valuable. Investors are willing to pay a premium for a bond that offers superior cash flows relative to the current market yields.

Thus, the bond price being higher than the redemption value correctly reflects the condition where the coupon rate exceeds the GRY.