Bond X has 5 years maturity with 8 percent coupon rate, Bond Y also has 5 years maturity but the coupon rate is 6 percent. Both bonds are exposed to the same market interest rates, hence the same required rate of returns. If the market interest rates of both bonds increase by the same amount, which of the following statements is most correct? Both bonds will decline in price, Bond Y will have a greater percentage decline in price than Bond X. The prices of both bonds will decrease by the same amount. Both bonds will increase in price, Bond X will have a greater percentage increase in price than Bond Y. Both bonds will increase in price, Bond Y will have a greater percentage increase in price than Bond X.
Bond X has 5 years maturity with 8 percent coupon rate, Bond Y also has 5 years maturity but the coupon rate is 6 percent. Both bonds are exposed to the same market interest rates, hence the same required rate of returns. If the market interest rates of both bonds increase by the same amount, which of the following statements is most correct? Both bonds will decline in price, Bond Y will have a greater percentage decline in price than Bond X. The prices of both bonds will decrease by the same amount. Both bonds will increase in price, Bond X will have a greater percentage increase in price than Bond Y. Both bonds will increase in price, Bond Y will have a greater percentage increase in price than Bond X.
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:Bond X has 5 years maturity with 8 percent coupon rate, Bond Y also has 5 years maturity but the
coupon rate is 6 percent. Both bonds are exposed to the same market interest rates, hence the
same required rate of returns. If the market interest rates of both bonds increase by the same
amount, which of the following statements is most correct?
Both bonds will decline in price, Bond Y will have a greater percentage decline in price than Bond X.
O The prices of both bonds will decrease by the same amount.
Both bonds will increase in price, Bond X will have a greater percentage increase in price than Bond Y.
Both bonds will increase in price, Bond Y will have a greater percentage increase in price than Bond X.
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