Question Details

Which of the following bonds would have the largest percentage increase 


1.	You are considering two bonds.  Bond A has a 9% annual coupon while Bond B has a 6% annual coupon.  Both bonds have a 7% yield to maturity, and the YTM is expected to remain constant.  Which of the following statements is CORRECT?

a.	The price of Bond B will decrease over time, but the price of Bond A will increase over time.
b.	The prices of both bonds will remain unchanged.
c.	The price of Bond A will decrease over time, but the price of Bond B will increase over time.
d.	The prices of both bonds will increase by 7% per year.
e.	The prices of both bonds will increase over time, but the price of Bond A will increase at a faster rate.
	
2.	Which of the following bonds would have the greatest percentage increase in value if all interest rates in the economy fall by 1%?

a.	10-year, zero coupon bond.
b.	20-year, 10% coupon bond.
c.	20-year, 5% coupon bond.
d.	1-year, 10% coupon bond.
e.	20-year, zero coupon bond.
	
3.	Assume that all interest rates in the economy decline from 10% to 9%.  Which of the following bonds would have the largest percentage increase in price?

a.	An 8-year bond with a 9% coupon.
b.	A 1-year bond with a 15% coupon.
c.	A 3-year bond with a 10% coupon.
d.	A 10-year zero coupon bond.
e.	A 10-year bond with a 10% coupon.
	
4.	Which of the following bonds has the greatest interest rate price risk?

a.	A 10-year $100 annuity.
b.	A 10-year, $1,000 face value, zero coupon bond.
c.	A 10-year, $1,000 face value, 10% coupon bond with annual interest payments.
d.	All 10-year bonds have the same price risk since they have the same maturity.
e.	A 10-year, $1,000 face value, 10% coupon bond with semiannual interest payments.
	
5.	If its yield to maturity declined by 1%, which of the following bonds would have the largest percentage increase in value?

a.	A 1-year zero coupon bond.
b.	A 1-year bond with an 8% coupon.
c.	A 10-year bond with an 8% coupon.
d.	A 10-year bond with a 12% coupon.
e.	A 10-year zero coupon bond.




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