Question
Bonds A, B, and C all have a maturity of 10 years and a yield to maturity equal to 7 percent. Bond As price exceeds
Bonds A, B, and C all have a maturity of 10 years and a yield to maturity equal to 7 percent. Bond As price exceeds its par value, Bond Bs price equals its par value, and Bond Cs price is less than its par value. Which of the following statements is most correct?
I. If the yield to maturity on each bond increases to 8 percent, the price of all three bonds will decline.
II. If the yield to maturity on the three bonds remains constant, the price of the three bonds will remain the same over the course of the next year.
III. If the yield to maturity on each bond decreases to 6 percent, Bond A will have the smallest percentage increase in its price.
A.
only II
B.
I and III
C.
I and II
D.
only I
E.
only III
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