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

question 36

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. 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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Definitions:

Receptivity

Whether you “get” (pay attention to, understand) the message.

Intended Audience

The specific group of people that a message, product, or service is aimed at reaching or influencing.

Absorb a Given Message

The process of fully comprehending, internalizing, and accepting a specific piece of information or communication.

Pays Attention

The act of focusing one’s cognitive resources on a specific object, event, or thought process, either voluntarily or involuntarily.