$4$

$25$ points

Bond A matures in $30$ years, and Bond B matures in $5$ years. Both bonds are par bonds with prices of $$1,000$ and have the same yield to maturity. The next day, YTM increases by

$2\%$ for both bonds. Malkiel's second theorem tells us that

bond A$\text{'}$s price will drop further than bond B$\text{'}$s$.$

both bonds' prices will fall the same amount.

bond B$\text{'}$s price will drop further than bond A$\text{'}$s$.$

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