Assume You Own a Consol (A Perpetual Bond) and a Five-Year

question 14

Multiple Choice

Assume you own a consol (a perpetual bond) and a five-year maturity bond, each with the same current yield.What will happen if the market interest rate decreases from 10% to 8%?

• A)the value of the consol will decrease less than the value of the five-year bond
• B)the value of the consol will decrease more than the value of the five-year bond
• C)the value of the consol and the five-year bond will increase by the same amount
• D)the value of the consol will increase more than the value of the five-year bond
• E)the value of the consol will increase less than the value of the five-year bond

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