. Bond yields and prices over time A bond investor is analyzing the following an

Question

. Bond yields and prices over time A bond investor is analyzing the following anual coupon bonds issuing CompanyAnnual Coupon Rate win Metalworks tach bond has 10 years unti maturity and has-same r . Ther ywd to maturty mmo-nitmetrates we assumed to remain constant over thhe next 10 year, ubel the curves on the ng graph ton0cabe th, p that each bond's price, or valut, is expected to follow Based on the preceding information, which of the allowing statements are true Check all nat apply Smith's bonds are a better investment shan hson's bonds Aa of the bonds will have the same walue when they reach manny. The expected aptal gans ywid for lghnson's . win's bonds area bener investment than Smen's bonds. ohnson just registered and issued its bonds, which will be sold in the bond market for the ist timeJohnson's bonds be referred to as

Explanation / Answer

1) For the Graph:

Red Line: Smith Incorporated. Smith Incorporated will be trading at premium to par as its coupon rate of 12 % is higher than the current yield of 9 %. Over course of time its price will decrease towards par.

Green Line: Brwin Metalworks. It is trading at par as its coupon rate of 9 % is equal to the current yield of 9 %.

Blue Line: Johnson Enterprises. Johnson Enterprises will be trading at a discount to par as its coupon rate of 6 % is lower than the current yield of 9 %. Over course of time its price will increase towards par.

2) The correct answers are:

3) Seasoned Issue or New Issue

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