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Mayfield purchased some 15 year bonds and some 5 year bonds, each with coupon rates of 8%. Interest rates are projected to increase in the
Mayfield purchased some 15 year bonds and some 5 year bonds, each with coupon rates of 8%. Interest rates are projected to increase in the near future. What is likely to happen to the value of his investment if rates do in-fact increase? a) The 5-year bonds will decrease in price more than the 15-year bonds due to their higher interest rate risk. b) The 15-year bonds will decrease in price more than the 5-year bonds due to their higher interest rate risk. The prices of both the 15-year bonds and the 5-year bonds will have identical decreases in their prices. d) The 5-year bonds will increase in price more than the 15-year bonds due to their higher reinvestment rate risk. e) The prices of both the 15-year bonds and the 5-year bonds will have identical increases in their prices
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