You're contemplating purchasing three distinct bonds. Each bond has a ten-year maturity and a face value of $1,000. Since the bonds carry the same amount of risk, their yield to maturity is same. Bond A possesses an Bond A pays an annual coupon of 8%, Bond B pays a 10% annual coupon, and Bond C pays a 12% annual coupon. Bond B is redeemable at par. Which of the above assertions is more accurate if interest rates are predicted to continue at their current pace over the next decade? a. Bond A is sold at a discount (less than par value) and is supposed to appreciate in value during the next year. b. The price of Bond A is expected to decline over the next year, the price of Bond B is expected to remain constant, and the price of Bond C is expected to rise over the next year. c. Since the bonds all have the same yield to maturity, and interest rates are not likely to adjust, their values can stay stable before the bonds mature. d. Bond C is sold at a premium (above par), and its price is projected to rise over the next year. e. Both statements b and d are true.
You're contemplating purchasing three distinct bonds. Each bond has a ten-year maturity and a face value of $1,000. Since the bonds carry the same amount of risk, their yield to maturity is same. Bond A possesses an
Bond A pays an annual coupon of 8%, Bond B pays a 10% annual coupon, and Bond C pays a 12% annual coupon. Bond B is redeemable at par. Which of the above assertions is more accurate if interest rates are predicted to continue at their current pace over the next decade?
a. Bond A is sold at a discount (less than par value) and is supposed to appreciate in value during the next year.
b. The price of Bond A is expected to decline over the next year, the price of Bond B is expected to remain constant, and the price of Bond C is expected to rise over the next year.
c. Since the bonds all have the same yield to maturity, and interest rates are not likely to adjust, their values can stay stable before the bonds mature.
d. Bond C is sold at a premium (above par), and its price is projected to rise over the next year.
e. Both statements b and d are true.
Step by step
Solved in 2 steps
