Consider Two Bonds, a and B

question 22

Multiple Choice

Consider two bonds, A and B. Both bonds presently are selling at their par value of $1 000. Each pay interest of $120 annually. Bond A will mature in 5 years while Bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 14%, ________.

• A)both bonds will increase in value but Bond A will increase more than Bond B
• B)both bonds will increase in value but Bond B will increase more than Bond A
• C)both bonds will decrease in value but Bond A will decrease more than Bond B
• D)both bonds will decrease in value but Bond B will decrease more than Bond A

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Definitions:

Consumer Income

The total amount of income earned by consumers, influencing their purchasing power and demand for goods and services in the economy.

Demand Curve

A graphical representation showing the relationship between the price of a product and the quantity of the product demanded at those prices.

Quantity Demanded

Quantity demanded is the total amount of a good or service that consumers are willing and able to purchase at a given price in a specified period.

Demand

How much of a product or service shoppers are prepared and financially able to buy across a range of prices within a set period.