[Related to the Apply the Concept: "How to Follow the Bond Market: Reading the Bond Tables ] Consider the following information on two U.S. Treasury bonds Bid ZOIKEIT 101.8984 103.4141 Bond A Bond B Maturity July 31, 2024 July 31, 2024 Coupon 1.625 2.000 Asked 101.9141 103.4297 Chg 0:5000 0.5000 Asked yield 1.151 1.151 Briefly explain how two securities that have the same yield to maturity can have different asked prices OA. Bond A has a low coupon rate and a lower price Bond B has a higher coupon rate and a higher price. Because of the bond price formula, if coupon rates rise, the yield will fall, which requires prices to fall to keep the yield the same If both bonds have the same risk profile, the law of one price brings bond yields to the same level OB. Bond A has a low coupon rate and a lower price. Bond B has a higher coupon rate and a higher price, Because of the bond price formula, if coupon rates fall, the yield will rise, which requires prices to rise to keep the yield the same. If both bonds have the same risk profile, the law of one price brings bond yields to the same level OC. Bond A has a low coupon rate and a lower price. Bond B has a higher coupon rate and a higher price. Because of the bond price formula, if coupon rates fall, the yield will fall, which requires prices to fall to keep the yield the same. If both bonds have the same risk profile, the law of one price brings bond yields to the same level OD. Bond A has a low coupon rate and a lower price Bond B has a higher coupon rate and a higher price. Because of the bond price formula, if coupon rates fall, the yield will fall, which requires prices to fall to keep the yield the same. If the two bonds have different risk profiles, the law of one price brings bond yields to the same level

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 3Q: The rate of return on a bond held to its maturity date is called the bonds yield to maturity. If...

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G.277.

Transcribed Image Text:[Related to the Apply the Concept: "How to Follow the Bond Market: Reading the Bond Tables ] Consider the following information on two U.S. Treasury bonds Bond A Bond B Maturity July 31, 2024 July 31, 2024 Briefly explain how two securities that have the same yield to maturity can have different asked prices A. Bond A has a low coupon rate and a lower price. Bond B has a higher coupon rate and a higher price. Because of the bond price formula, if coupon rates rise, the yield will fall, which requires prices to fall to keep the yield the same. If both bonds have the same risk profile, the law of one price brings bond yields to the same level Coupon 1.625 2.000 Bid 101.8984 103.4141 Asked 101.9141 103.4297 Chg 05000 0.5000 Asked yield 1.151 1.151 OB. Bond A has a low coupon rate and a lower price. Bond B has a higher coupon rate and a higher price, Because of the bond price formula, if coupon rates fall, the yield will rise, which requires prices to rise to keep the yield the same. If both bonds have the same risk profile, the law of one price brings bond yields to the same level. OC. Bond A has a low coupon rate and a lower price. Bond B has a higher coupon rate and a higher price. Because of the bond price formula, if coupon rates fall, the yield will fall, which requires prices to fall to keep the yield the same. If both bonds have the same risk profile, the law of one price brings bond yields to the same level OD. Bond A has a low coupon rate and a lower price Bond B has a higher coupon rate and a higher price. Because of the bond price formula, if coupon rates fall, the yield will fall, which requires prices to fall to keep the yield the same. If the two bonds have different risk profiles, the law of one price brings bond yields to the same level

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