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2. Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pays interest of $120 annually. Bond
2. Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pays interest of $120 annually. Bond A will mature in 5 years, while bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 14%, A. both bonds will increase in value but bond A will increase more than bond B B. both bonds will increase in value but bond B will increase more than bond A c. both bonds will decrease in value but bond A will decrease more than bond B D. both bonds will decrease in value but bond B will decrease more than bond A 3. Which one of the following statements is correct concerning discount bonds? A. The discount will keep increasing when interest rates keep rising. B. As the bond gets closer to maturity, the discount increases. C. The yield to maturity is less than the coupon rate. D. The par value exceeds the face value. 4. A coupon bond which pays interest of $60 annually, has a par value of $1,000, matures in 5 years, and is selling today at a $84.52 discount from par value. The yield to maturity on this bond is A. 6.31% B. 7.14% C. 8.12% D. 9.42%
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