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The YTMs of three $1,000 face value bonds that mature in 10 years and have the same level of risk are equal. Bond A has an 8% annual coupon, Bond B has a 10% annual coupon, and Bond C has a 12% annual coupon. Bond B sells at par. Assuming interest rates remain constant for the next 10 years, which of the following statements is correct? and why?

a. Bond A's current yield will increase each year.
b. Over the next year, Bond A's price is expected to decrease, Bond B's price is expected to stay the same, and Bond C's price is expected to increase.
c. Bond A sells at a discount (its price is less than par), and its price is expected to increase over the next year.
d. Since the bonds have the same YTM, they should all have the same price, and since interest rates are not expected to change, their prices should all remain at their current levels until maturity.
e. Bond C sells at a premium (its price is greater than par), and its price is expected to increase over the next year.

Respuesta :

chamberlainuket

Answer:

c. Bond A sells at a discount (its price is less than par), and its price is expected to increase over the next year

Explanation:

- because the bond sells for 10% so the require returns for all 3 bonds will be 10%

- so the 10% price will be constant

At 8% discount will increase

And at 12% it will sell at premium and will decline

oyagbileoluwaseun

Answer:

Option "D" is correct.

Explanation:

Since the bonds have the same YTM, they should all have the same price, and since interest rates are not expected to change, their prices should all remain at their current levels until maturity.

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