Bonds A, B, and C All Have a Maturity of 15

question 74

Multiple Choice

Bonds A, B, and C all have a maturity of 15 years and a yield to maturity of 9%. Bond A's price exceeds its par value, Bond B's price equals its par value, and Bond C's price is less than its par value. Which of the following statements is CORRECT?

• A) bond a has the most interest rate risk.
• B) if the yield to maturity on the three bonds remains constant, the prices of the three bonds will remain the same over the next year.
• C) if the yield to maturity on each bond increases to 8%, the prices of all three bonds will decline.
• D) bond c sells at a premium over its par value.
• E) if the yield to maturity on each bond decreases to 6%, bond a will have the largest percentage increase in its price.

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Definitions:

Good News Earnings

Earnings reports that exceed investors' expectations, positively influencing the company's stock price.

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The returns a shareholder earns on their investment, including both price appreciation and dividends.

Earnings Announcement Date

The specified day on which a company publicly releases its financial performance results for a given period.

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International Accounting Standards Board; the organization responsible for developing and publishing the International Financial Reporting Standards (IFRS).