Question
If interest rates suddenly decrease, which of the two bond will likely experience the greater % increase in price? [I] 8% coupon, 20-year maturity discount
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If interest rates suddenly decrease, which of the two bond will likely experience the greater % increase in price? [I] 8% coupon, 20-year maturity discount bond [II] 8% coupon, 20-year maturity premium bond
Bond I
Bond II
The % price decrease will be the same for the two bonds.
Not enough information
If interest rates suddenly decrease, which of the two bond will likely experience the greater % increase in price? [I] 8% coupon, 20-year maturity discount bond [II] 8% coupon, 20-year maturity premium bond
| Bond I | ||
| Bond II | ||
| The % price decrease will be the same for the two bonds. | ||
| Not enough information |
2. Which of the statements must be true? For large changes in interest rates, duration will tend to _______. [I] underestimate the actual percentage increase in bond price when the yield falls [II] underestimate the actual percentage decrease in bond price when the yield rises
| I only | ||
| II only | ||
| I and II | ||
| Neither statement are true |
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