John owns a corporate bond with a coupon rate of 8% that matures in 10 years. Bi

Question

John owns a corporate bond with a coupon rate of 8% that matures in 10 years. Bill owns a corporate bond with a coupon rate of 12% that matures in 25 years. If interest rates go down, then
A) the value of the bond will decrease and the value of Bill"s bond will increase.
B) the value of both bonds will increase
C) the value of Bill's bond will decrease more than the value of John's bond due to the longer time to maturity.
D) the value of both bonds will remain the same because they were both purchased in an earlier time period before the interest rate changed.

Explanation / Answer

B- The value of both bonds will increase

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