Bonds A,B,and C All Have a Maturity of 10 Years

question 75

Multiple Choice

Bonds A,B,and C all have a maturity of 10 years and a yield to maturity of 7%.Bond A's price exceeds its par value,Bond B's price equals its par value,and Bond C's price is less than its par value.None of the bonds can be called.Which of the following statements is CORRECT?

• A) If the yield to maturity on each bond decreases to 6%,Bond A will have the largest percentage increase in its price.
• B) Bond A has the most price risk.
• C) If the yield to maturity on the three bonds remains constant,the prices of the three bonds will remain the same over the next year.
• D) If the yield to maturity on each bond increases to 8%,the prices of all three bonds will decline.
• E) Bond C sells at a premium over its par value.

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Definitions:

US Dollar Appreciates

An increase in the value of the US dollar relative to other currencies, making foreign goods and services cheaper for US consumers and US exports more expensive for foreign buyers.

US Exports

Goods or services sold by the United States to buyers in other countries.

Foreigners

Individuals who come from a different country or nation than the one being referred to.

Carry Trade

A financial strategy that involves borrowing at a low interest rate and investing in an asset that provides a higher rate of return.