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Consider a two-year 8% coupon bond and a three-year 5% coupon bond with the same face value. Both trade at par. If interest rates for
Consider a two-year 8% coupon bond and a three-year 5% coupon bond with the same face value. Both trade at par. If interest rates for all maturities increase by the same (small) amount, what will happen to the prices of the two bonds? a. The price of the two-year bond will increase by more than the price of the three- year bond. b. The price of the two-year bond will increase by less than the price of the three-year bond. c. The price of the two-year bond will decrease by more than the price of the three- year bond. d. The price of the two-year bond will decrease by less than the price of the three-year bond. Why? [Please limit your answer to no more than 2 sentences. Your score on this question depends on how correct and concise is the answer to this question]
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