Interest rates and bond prices Answer: d Diff: E
4. A 10-year Treasury bond has an 8 percent coupon. An 8-year Treasury bond has a 10 percent coupon. Both bonds have the same yield to maturity. If the yields to maturity of both bonds increase by the same amount, which of the following statements is most correct?
a. The prices of both bonds will increase by the same amount.
b. The prices of both bonds will decrease by the same amount.
c. The prices of the two bonds will remain the same.
d. Both bonds will decline in price, but the 10-year bond will have a greater percentage decline in price than the 8-year bond.
e. Both bonds will decline in price, but the 8-year bond will have a greater percentage decline in price than the 10-year bond.
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