4) Bonds A and B are selling at par value, and each has 10 years to maturity. Bond A has a coupon rate of 5%, and bond B has a coupon rate of 15%. Which of the following is true about the durations of these bonds? A) The duration of the higher coupon bond will be higher. B) There is no consistent statement that can be made about the durations of the bonds. C) The duration of the A bond will equal the duration of B coupon bond. D) The duration of the lower coupon bond will be higher Provide accurate answer with justification
4) Bonds A and B are selling at par value, and each has 10 years to maturity. Bond A has a coupon rate of 5%, and bond B has a coupon rate of 15%. Which of the following is true about the durations of these bonds? A) The duration of the higher coupon bond will be higher. B) There is no consistent statement that can be made about the durations of the bonds. C) The duration of the A bond will equal the duration of B coupon bond. D) The duration of the lower coupon bond will be higher Provide accurate answer with justification
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
Question
4) Bonds A and B are selling at par value, and each has 10 years to maturity. Bond A has a coupon rate of 5%, and bond B has a coupon rate of 15%. Which of the following is true about the durations of these bonds?
A) The duration of the higher coupon bond will be higher.
B) There is no consistent statement that can be made about the durations of the bonds.
C) The duration of the A bond will equal the duration of B coupon bond.
D) The duration of the lower coupon bond will be higher
Provide accurate answer with justification.
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