Bond yield Answer: a Diff: E
21. A 10-year bond pays an annual coupon. The bond has a yield to maturity of 8 percent. The bond currently trades at a premium--its price is above the par value of $1,000. Which of the following statements is most correct?
a. If the yield to maturity remains at 8 percent, then the bond’s price will decline over the next year.
b. The bond’s current yield is less than 8 percent.
c. If the yield to maturity remains at 8 percent, then the bond’s price will remain the same over the next year.
d. The bond’s coupon rate is less than 8 percent.
e. If the yield to maturity increases, then the bond’s price will increase.
Bond yields and prices Answer: d Diff: E
22. You are considering two Treasury bonds. Bond A has a 9 percent annual coupon, and Bond B has a 6 percent annual coupon. Both bonds have a yield to maturity of 7 percent. Assume that the yield to maturity is expected to remain at 7 percent. Which of the following statements is most correct?
a. If the yield to maturity remains at 7 percent, the price of both bonds will increase by 7 percent per year.
b. If the yield to maturity remains at 7 percent, the price of both bonds will increase over time, but the price of Bond A will increase by more.
c. If the yield to maturity remains at 7 percent, the price of both bonds will remain unchanged.
d. If the yield to maturity remains at 7 percent, the price of Bond A will decrease over time, but the price of Bond B will increase over time.
e. If the yield to maturity remains at 7 percent, the price of Bond B will decrease over time, but the price of Bond A will increase over time.
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