Bond X has an 8% annual coupon, Bond Y has a 10% annual coupon, and Bond Z
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Question:
Bond X has an 8% annual coupon, Bond Y has a 10% annual coupon, and Bond Z has a 12% annual coupon. Each of the bonds is noncallable, has a maturity of 10 years, and has a yield to maturity of 10%. Which of the following statements is CORRECT?
- Bond X has the greatest reinvestment risk.
- If market interest rates increase, Bond X's price will increase, Bond Z's price will decline, and Bond Y's price will remain the same.
- If market interest rates remain at 10%, Bond Z's price will be 10% higher one year from today.
- If the bonds' market interest rate remains at 10%, Bond Z's price will be lower one year from now than it is today.
- If market interest rates decline, the prices of all three bonds will increase, but Z's price will have the largest percentage increase.
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