You are considering two bonds. Bond A has a 9% annual coupon while Bond B has a

Question

You are considering two bonds. Bond A has a 9% annual coupon while Bond B has a 6%

annual coupon. Both bonds have a 7% yield to maturity, and the YTM is expected to remain

constant. Which of the following statements is correct?

a. The price of Bond B will decrease over time, but the price of Bond A will increase over

time.

b. The prices of both bonds will remain unchanged.

c. The price of Bond A will decrease over time, but the price of Bond B will increase over

time.

d. The prices of both bonds will increase over time, but the price of Bond A will increase by

more.

Explanation / Answer

The price of Bond A will decrease over time, but the price of Bond B will increase over time

Here, the Yield to Maturity (YTM) for both bonds is same and it is the market interest rate for both the bonds. Bond A

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.