Two Bonds Are Selling at Par Value, and Each Has

question 49

Multiple Choice

Two bonds are selling at par value, and each has 17 years to maturity. The first bond has a coupon rate of 6%, and the second bond has a coupon rate of 13%. Which of the following is false about the durations of these bonds?

• A) The duration of the higher coupon bond will be higher.
• B) The duration of the lower coupon bond will be higher.
• C) The duration of the higher coupon bond will equal the duration of the lower coupon bond.
• D) There is no consistent statement that can be made about the durations of the bonds.
• E) The duration of the higher coupon bond will be higher, and the duration of the higher coupon bond will equal the duration of the lower coupon bond.

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Definitions:

Structural Unemployment

Occurs when there is a mismatch between the skills that workers offer and the skills demanded by employers, often due to technological changes or shifts in the economy.

Short Spells Of Unemployment

Short spells of unemployment refer to brief periods during which an individual is without a job and actively seeking work.

Frictional Unemployment

Unemployment that occurs when people are in between jobs or are entering the workforce for the first time, typically a temporary condition.

Long Spells Of Unemployment

Extended periods during which an individual is unable to find work despite actively looking for employment.