Question
Consider two corporate bonds. Both bonds pay annual interest and have face values of $1000. Bond X matures in 10 years, has 5% annual coupons
Consider two corporate bonds. Both bonds pay annual interest and have face values of $1000. Bond X matures in 10 years, has 5% annual coupons and currently has 5% YTM. Bond Y matures in 15 years, had 5% annual coupons, and currently had 5% YTM. If the market rate of interest drops unexpectedly to 4%, what will happen to the prices of the bonds?
A. The price of both bonds will rise by the same dollar
B. The price of both bonds will rise and Bond X will rise by a larger amount
C. The price of both bonds will rise and Bond Y will rise by a larger amount
D. The price of both bonds will rise but only one of them will rise above $1000
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