Bonds A, B, and C All Have a Maturity of 15

question 81

Multiple Choice

Bonds A, B, and C all have a maturity of 15 years and a yield to maturity of 9%.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.Which of the following statements is CORRECT?

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

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Definitions:

Perfect Competitor

A hypothetical firm in a perfectly competitive market, where it must accept the prevailing market price and cannot influence it.

Average Total Cost

The cost per unit of output, calculated by dividing the total cost of production by the quantity of output.

Perfect Competition

A market structure characterized by a large number of small firms, a homogeneous product, free entry and exit, and perfect information.

Perfect Competitor

A theoretical market structure where numerous small firms compete against each other without having any significant market power.