5) Bond A is a 10-year, 8 percent annual coupon bond with a $1,000 par value. Bond B is a 10-year, 6 percent annual coupon bond with a $1,000 par value. Both bonds currently have a yield to maturity of 4 percent. Which of the following statements is correct if the market yield decreases to 2 percent? 1. Bond A will increase in value by a greater percentage than Bond B. 2. Bond B will increase in value by a greater percentage than Bond A. 3. Both bonds would decrease in value by 8.27 percent. 4. Bond B will decrease in value by a greater percentage than Bond A. 5. Both bonds will increase in value by 8.27 percent.
5) Bond A is a 10-year, 8 percent annual coupon bond with a $1,000 par value. Bond B is a 10-year, 6 percent annual coupon bond with a $1,000 par value. Both bonds currently have a yield to maturity of 4 percent. Which of the following statements is correct if the market yield decreases to 2 percent? 1. Bond A will increase in value by a greater percentage than Bond B. 2. Bond B will increase in value by a greater percentage than Bond A. 3. Both bonds would decrease in value by 8.27 percent. 4. Bond B will decrease in value by a greater percentage than Bond A. 5. Both bonds will increase in value by 8.27 percent.
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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Transcribed Image Text:5) Bond A is a 10-year, 8 percent annual coupon bond with a $1,000 par value. Bond B is a 10-year, 6 percent annual coupon bond with a $1,000 par value. Both bonds
currently have a yield to maturity of 4 percent. Which of the following statements is correct if the market yield decreases to 2 percent?
1. Bond A will increase in value by a greater percentage than Bond B.
2. Bond B will increase in value by a greater percentage than Bond A.
3. Both bonds would decrease in value by 8.27 percent.
4. Bond B will decrease in value by a greater percentage than Bond A.
5. Both bonds will increase in value by 8.27 percent.
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