You're thinking of buying three separate bonds. Each bond has a face value of $1,000 and will maturity after ten years. Since both of the bonds have the same amount of risk, their yield to maturity is the same. Bond A pays an annual coupon of 8%, Bond B pays a 10% annual coupon, and Bond C pays a 12% annual coupon. Bond B is sold at par value. Which of the above assertions is more accurate if interest rates are supposed to stay at their present pace for the next ten years? a. Bond A is sold at a discount (less than par) and is projected to rise in value over the next year. b. During the next year, Bond A's price is expected to fall, Bond B's price is expected to remain unchanged, and Bond C's price is expected to rise. c. Since all of the bonds have the same yield to maturity, they should all have the same amount, and because interest rates are unlikely to adjust, their values should all stay the same once the bonds mature. d. Bond C is sold at a premium (it is worth more than par) and is predicted to rise in value over the next year. e. Both b and d are right statements.
You're thinking of buying three separate bonds. Each bond has a face value of $1,000 and will maturity after ten years. Since both of the bonds have the same amount of risk, their yield to maturity is the same. Bond A pays an annual coupon of 8%, Bond B pays a 10% annual coupon, and Bond C pays a 12% annual coupon. Bond B is sold at par value. Which of the above assertions is more accurate if interest rates are supposed to stay at their present pace for the next ten years?
a. Bond A is sold at a discount (less than par) and is projected to rise in value over the next year.
b. During the next year,
c. Since all of the bonds have the same yield to maturity, they should all have the same amount, and because interest rates are unlikely to adjust, their values should all stay the same once the bonds mature.
d. Bond C is sold at a premium (it is worth more than par) and is predicted to rise in value over the next year.
e. Both b and d are right statements.
Step by step
Solved in 2 steps
