Consider Each of the Following Bonds

question 17

Multiple Choice

Consider each of the following bonds:
Bond A:8-year maturity with a 7% annual coupon.
Bond B:10-year maturity with a 9% annual coupon.
Bond C:12-year maturity with a zero coupon.
Each bond has a face value of $1,000 and a yield to maturity of 8%.Which of the following statements is NOT correct?

• A)Bond A sells at a discount, while Bond B sells at a premium.
• B)If the yield to maturity on each bond falls to 7%, Bond C will have the largest percentage increase in its price.
• C)Bond C has the most reinvestment risk.
• D)Bond C has the most price risk.
• E)If the yield to maturity is constant, the price of Bond A will continue to increase over its life until it finally sells at par.

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Definitions:

Actual Parameter

The specific value provided to a function or a method when it is called, serving as input to execute the function.

Return Statement

A statement in programming that ends the execution of a function and optionally returns a value to the caller.

Static

A keyword in programming languages that indicates a member of a class is shared among all instances or is accessible without needing an instance.

Void Methods

Methods in programming that do not return a value after executing a set of statements.