16. You are considering investing in three different bonds. Each bond matures in 10 years and has a face value of $1,000. The bonds have the same level of risk, so the yield to maturity is the same for each. Bond A has an 8 percent annual coupon, Bond B has a 10 percent annual coupon, and Bond C has a 12 percent annual coupon. Bond B sells at par. Assuming that interest rates are expected to remain at their current level for the next 10 years, which of the following statements is most correct? a. Bond A sells at a discount (its price is less than par), and its price is expected to increase over the next year. b. Bond A’s price is expected to decrease over the next year, Bond B’s price is expected to stay the same, and Bond C’s price is expected to increase over the next year. c. Since the bonds have the same yields to maturity, they should all have the same price, and since interest rates are not expected to change, their prices should all remain at their current levels until the bonds mature. d. Bond C sells at a premium (its price is greater than par), and its price is expected to increase over the next year. e. Statements b and d are correct.
16. You are considering investing in three different bonds. Each bond matures
in 10 years and has a face value of $1,000. The bonds have the same level
of risk, so the yield to maturity is the same for each. Bond A has an
8 percent annual coupon, Bond B has a 10 percent annual coupon, and Bond C
has a 12 percent annual coupon. Bond B sells at par. Assuming that
interest rates are expected to remain at their current level for the next
10 years, which of the following statements is most correct?
a. Bond A sells at a discount (its price is less than par), and its
price is expected to increase over the next year.
b.
price is expected to stay the same, and Bond C’s price is expected to
increase over the next year.
c. Since the bonds have the same yields to maturity, they should all
have the same price, and since interest rates are not expected to
change, their prices should all remain at their current levels until
the bonds mature.
d. Bond C sells at a premium (its price is greater than par), and its
price is expected to increase over the next year.
e. Statements b and d are correct.
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