Multiple Choice
Bond A has a 9% annual coupon, while Bond B has a 7% annual coupon. Both bonds have the same maturity, a face value of $1,000, and an 8% yield to maturity. Which of the following statements is CORRECT?
A) Bond A's capital gains yield is greater than Bond B's capital gains yield.
B) Bond A trades at a discount, whereas Bond B trades at a premium.
C) If the yield to maturity for both bonds remains at 8%, Bond A's price one year from now will be higher than it is today, but Bond
B's price one year from now will be lower than it is today.
D) If the yield to maturity for both bonds immediately decreases to
6%, Bond A's bond will have a larger percentage increase in value.
E) Bond A's current yield is greater than that of Bond B.
Correct Answer:
Verified
Correct Answer:
Verified
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