Question
Bond A has a 9% annual coupon, while Bond B has a 7% annual coupon. Both bonds have the same maturity, a face value of
Bond A has a 9% annual coupon, while Bond B has a 7% annual coupon. Both bonds have the same maturity, a face value of $1,000, an 8% yield to maturity. Which of the following statements is CORRECT?
a. If the yield to maturity for both bonds immediately decreases to 6%, Bond As bond will have a larger percentage increase in value.
b. If the yield to maturity for both bonds remains at 8%, Bond As price one year from now will be higher than it is today, but Bond Bs price one year from now will be lower than it is today.
c. Assuming YTM remains constant, in one year Bond As capital gains yield will be more than Bond Bs capital gains yield.
d. Bond As current yield is greater than that of Bond B.
e. Bond A trades at a discount, whereas Bond B trades at a premium.
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