Bonds a and B Are 15-Year, $1,000 Face Value Bonds

question 30

Multiple Choice

Bonds A and B are 15-year, $1,000 face value bonds.Bond A has a 7% annual coupon, while Bond B has a 9% annual coupon.Both bonds have a yield to maturity of 8%, which is expected to remain constant for the next 15 years.Which of the following statements is CORRECT?

• A) One year from now, Bond A's price will be higher than it is today.
• B) Bond A's current yield is greater than 8%.
• C) Bond A has a higher price than Bond B today, but one year from now the bonds will have the same price.
• D) Both bonds have the same price today, and the price of each bond is expected to remain constant until the bonds mature.
• E) Bond B has a higher price than Bond A today, but one year from now the bonds will have the same price.

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Definitions:

Schema

Cognitive structures or frameworks that help organize and interpret information, forming the basis of knowledge and understanding.

Preoperational

A stage in Piaget's theory of cognitive development, during which a child from about 2 to 7 years old begins to engage in symbolic play but does not yet understand concrete logic.

Formal Operational

The final stage of cognitive development (as per Jean Piaget's theory), characterized by the ability to think abstractly, logically, and systematically.

Concrete Operational

A stage in Piaget's theory of cognitive development where children (around ages 7 to 12) gain the ability to think logically about concrete and specific objects and events.