Consider Two Bonds, a and B

question 93

Multiple Choice

Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pays interest of $120 annually. Bond A will mature in five years, while bond B will mature in six years. If the yields to maturity on the two bonds change from 12% to 10%,

• A) both bonds will increase in value, but bond A will increase more than bond B.
• B) both bonds will increase in value, but bond B will increase more than bond A.
• C) both bonds will decrease in value, but bond A will decrease more than bond B.
• D) both bonds will decrease in value, but bond B will decrease more than bond A.
• E) None of the options are correct.

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Definitions:

NSF Check

A check that is not honored by the bank due to insufficient funds in the account to cover the amount written on the check.

Bank Reconciliation

The method of aligning and scrutinizing numbers from financial records with those presented in a bank statement to verify their consistency.

Interest Earned

The income received from investments in financial instruments like savings accounts, bonds, and loans, usually calculated as a percentage of the principal amount.

Internal Control

A process implemented by a company’s management and board of directors to provide reasonable assurance regarding the achievement of objectives in effectiveness and efficiency of operations, reliable financial reporting, and compliance with laws and regulations.