Question
28. Three $1,000 face value bonds that mature in 10 years have the same level of risk, hence their YTMs are equal. Bond A has
28. Three $1,000 face value bonds that mature in 10 years have the same level of risk, hence their YTMs 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?
A. Bond A's current yield will increase each year.
B. Since the bonds have the same YTM, they should have the same price, and since interest rates are not expected to change, their prices should all remain at their current levels until maturity,
C. Bond C sells at a premium(its price is greater than par), and its price is expected to increase as the bond approaches maturity.
E. As the bond approaches maturity, 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
The options below are all INCORRECT, I have the right answer. Can you please write a short explanation( like less than a sentence or a phrase) on why these options are incorrect for each one. Thank you !
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