According cording to malkiel's theorems, the correct statement is for a given absolute change in a bond's yield to maturity, a decrease in yield will cause a greater change in the bond's price than will an increase in yield. So, correct answer is option (c).
Malkeil's Theorem summarizes the relaionship between bond prices, yields, coupons and maturity. Below are theorem of malkeil's,
Theorem 1 : Bond prices and yield moves in opposite direction.
Theorem 2 : The long term bonds have more interest rate risk than the short term bonds.
Theorem 3 : The price sensitivity of any bond increases with its maturity in change in interest with a diminishing rate with a rate of interest.
Theorem 4 : The higher coupon rates have lesser interest rate risks.
Theorem 5 : The volatility of a bond is not symmetrical. i.e. a decrease in interest raises to increase in bond prices more than a corresponding increase in interest rates lower prices. From the Theorem 1, We can say that option c is correct - For a given absolute change in a bond's yield-to-maturity, a decrease in yield will cause a greater change (increase) in the bond's price than will an increase in yield.
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Complete question:
Which one of the following statements is correct according to malkiel's theorems? group of answer choices
a) for a given change in a bond's yield to maturity, the shorter the term to maturity, the greater will be the magnitude of the change in the bond's price.
b)the size of the change in a bond's price increases at a constant rate given ratable incremental increases in a bond's yield to maturity even as the term to maturity lengthens. the price of an outstanding bond is unaffected by changes in market interest rates.
c) for a given absolute change in a bond's yield to maturity, a decrease in yield will cause a greater change in the bond's price than will an increase in yield.
d) for a given change in a bond's yield to maturity, the absolute magnitude of the resulting change in the bond's price is directly related to the bond's coupon rate
