There are two issued bonds. Bond A is a zero-coupon bond with a maturity of 3...
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There are two issued bonds. Bond A is a zero-coupon bond with a maturity of 3 years, the yield to maturity is 3%, and a face value of 1100. Bond B is a coupon-paying bond with a maturity of 2 years, a face value of $1200, and a yield to maturity of 4%. The coupon rate of this bond is 6%. The prices of both bonds are not provided. Consider the following two statements: 1. The zero-coupon bond has a higher duration than the coupon-paying bond II. When the risk-free interest rate increases and therefore the discount rates increase, the price of Bond B will decrease. Select one: a. Only statement I is correct b. Only statement II is correct c. Both statements are correct d. Both statements are incorrect There are two issued bonds. Bond A is a zero-coupon bond with a maturity of 3 years, the yield to maturity is 3%, and a face value of 1100. Bond B is a coupon-paying bond with a maturity of 2 years, a face value of $1200, and a yield to maturity of 4%. The coupon rate of this bond is 6%. The prices of both bonds are not provided. Consider the following two statements: 1. The zero-coupon bond has a higher duration than the coupon-paying bond II. When the risk-free interest rate increases and therefore the discount rates increase, the price of Bond B will decrease. Select one: a. Only statement I is correct b. Only statement II is correct c. Both statements are correct d. Both statements are incorrect
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Answer rating: 100% (QA)
D Both statements are incorrect Explanation Duration is a measure of a bonds sen... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Posted Date:
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