Bond concepts Answer: d Diff: M N
40. Bond X has an 8 percent annual coupon, Bond Y has a 10 percent annual coupon, and Bond Z has a 12 percent annual coupon. Each of the bonds has a maturity of 10 years and a yield to maturity of 10 percent. Which of the following statements is most correct?
a. Bond X has the greatest reinvestment rate risk.
b. If market interest rates remain at 10 percent, Bond Z’s price will be 10 percent higher one year from today.
c. If market interest rates increase, Bond X’s price will increase, Bond Z’s price will decline, and Bond Y’s price will remain the same.
d. If market interest rates remain at 10 percent, Bond Z’s price will be lower one year from now than it is today.
e. If market interest rates decline, all of the bonds will have an increase in price, and Bond Z will have the largest percentage increase in price.
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