YTMs of Three $1,000 Face Value Bonds That Mature in 10

question 14

Multiple Choice

YTMs of three $1,000 face value bonds that mature in 10 years and have the same level of risk are equalBond A has an 8% annual coupon, Bond B has a 10% annual coupon, and Bond C has a 12% annual coupon Bond B sells at par Assuming interest rates remain constant for the next 10 years, which of the following statements is CORRECT?

• A) Since the bonds have the same YTM, they should all have the same price, and since interest rates are not expected to change, their prices should all remain at their current levels until maturity.
• B) Bond C sells at a premium (its price is greater than par), and its price is expected to increase over the next year.
• C) Bond A sells at a discount (its price is less than par), and its price is expected to increase over the next year.
• D) Over the next year, Bond A's price is expected to decrease, Bond B's price is expected to stay the same, and Bond C's price is expected to increase.
• E) Bond A's current yield will increase each year.

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Definitions:

Monthly Dollar Sales

The total revenue generated from sales in a month, measured in dollars.

Break-even

A condition where the aggregate of all financial outgoings is identical to the aggregate of all income, resulting in a neutral earnings scenario.

Monthly Unit Sales

The total quantity of products sold by a company in one month.

Selling Price

The amount for which a company offers its goods or services for sale to customers.