Question
Garneau Inc. has two 4.5% coupon bonds outstanding. Each of the bonds pays interest annually. Bond A has 15 years to maturity and bond B
Garneau Inc. has two 4.5% coupon bonds outstanding. Each of the bonds pays interest annually. Bond A has 15 years to maturity and bond B has 30 years to maturity. The current market rate of return is 3%. What will happen if the market rate of return decreases to 2%?
a. | The percentage change in the price of bond A will be less than the percentage change price in bond B. | |
b. | The percentage change in the price of bond A will be greater than the percentage change price in bond B. | |
c. | The price of the bonds will not change as the market rate of return has no effect on the value of the bond. | |
d. | The percentage change in the price of bond A will be the same as the percentage change price in bond B. |
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