3

A bond investor is analyzing the following annual coupon bonds: Issuing Company Johnson Incorporated Smith, LLC Irwin Corporation Each bond has 10 years until maturity and the same level of risk. Their yield to maturity (YTM) is 9%. Interest rates are assumed to remain constant over the next 10 years. BOND VALUE IS 1200 1100 1000 900 800 700 Annual Coupon Rate 6% 12% 9% B A C A Using the previous information, correctly match each curve on the graph to it's corresponding issuing company. (Hint: Each curve indicates the path that each bond's price, or value, is expected to follow.) Curve A Curve B Curve C Based on the preceding information, which of the following statements are true? Check all that apply. The bonds have the same expected total return. The expected capital gains yield for Smith, LLC's bonds is negative. Johnson Incorporated's bonds have the highest expected total return. The expected capital gains yield for Smith, LLC's bonds is greater than 12%. Johnson Incorporated just registered and issued its bonds, which will be sold in the bond market for the first time. Johnson Incorporated's bonds would be referred to as