Question
Bonds J and K are both zero coupon bonds, which means that they make only one payment. Bond J will pay $X in 10 years
Bonds J and K are both zero coupon bonds, which means that they make only one payment. Bond J will pay $X in 10 years and Bond K will pay $Y in 15 years. Assume that at current interest rates both have the same present value. An increase in interest rates will:
a. | lower the present values of both bonds and Bond K will now have a higher present value | |
b. | raise the present values of both bonds and Bond J will now have a higher present value
| |
c. | lower the present values of both bonds and Bond J will now have a higher present value | |
d. | raise the present values of both bonds and Bond K will now have a higher present value |
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