6. Bond yields and prices over time

A bond investor is analyzing the following annual coupon bonds:

Issuing Company	Annual Coupon Rate
Irwin, LLC	6%
Johnson Corporation	12%
Smith Incorporated	9%

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.

1. Using the previous information, correctly match each curve on the graph to its corresponding issuing company. (Hint: Each curve indicates the path that each bonds price, or value, is expected to follow.)

Curve A
Curve B
Curve C

2. Based on the preceding information, which of the following statements are true? Check all that apply.

A The expected capital gains yield for Johnson Corporations bonds is greater than 12%.

B The expected capital gains yield for Johnson Corporations bonds is negative.

C Irwin, LLCs bonds have the highest expected total return.

D The bonds have the same expected total return.

3. Smith Incorporateds bonds have exhibited a substantial trading volume in the past few years. Its bonds would be referred to as a ___________ .