Assume That a Noncallable 10-Year T-Bond Has a 12% Annual

question 91

Multiple Choice

Assume that a noncallable 10-year T-bond has a 12% annual coupon,while a 15-year noncallable T-bond has an 8% annual coupon.Assume also that the yield curve is flat,and all Treasury securities have a 10% yield to maturity.Which of the following statements is CORRECT?

• A) If interest rates decline,the prices of both bonds would increase,but the 15-year bond would have a larger percentage increase in price.
• B) If interest rates decline,the prices of both bonds would increase,but the 10-year bond would have a larger percentage increase in price.
• C) The 10-year bond would sell at a discount,while the 15-year bond would sell at a premium.
• D) The 10-year bond would sell at a premium,while the 15-year bond would sell at par.
• E) If the yield to maturity on both bonds remains at 10% over the next year,the price of the 10-year bond would increase,but the price of the 15-year bond would fall.

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