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

question 29

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 interest rate 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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