Three $1,000 Face Value,10-Year,noncallable,bonds Have the Same Amount of Risk,hence

question 74

Multiple Choice

Three $1,000 face value,10-year,noncallable,bonds have the same amount of risk,hence their YTMs are equal.Bond 8 has an 8% annual coupon,Bond 10 has a 10% annual coupon,and Bond 12 has a 12% annual coupon.Bond 10 sells at par.Assuming that interest rates remain constant for the next 10 years,which of the following statements is CORRECT?

• A) Bond 8's current yield will increase each year.
• B) Since the bonds have the same YTM,they should all have the same price,and since interest rates are not expected to change,their prices should all remain at their current levels until maturity.
• C) Bond 12 sells at a premium (its price is greater than par),and its price is expected to increase over the next year.
• D) Bond 8 sells at a discount (its price is less than par),and its price is expected to increase over the next year.
• E) Over the next year,Bond 8's price is expected to decrease,Bond 10's price is expected to stay the same,and Bond 12's price is expected to increase.

---

Definitions:

Protons

Positively charged particles found in the nucleus of an atom, contributing to the atom's mass and defining its element by determining the atomic number.

Isotope

An isotope refers to one of two or more forms of an element with the same number of protons but a different number of neutrons in the nucleus, resulting in different atomic masses but similar chemical properties.

Element

A substance consisting of atoms which all have the same number of protons, fundamentally the simplest substances that cannot be broken down using chemical methods.

Isotope

Variants of a particular chemical element that differ in neutron number, and consequently in nucleon number, but have the same number of protons.