George purchased 2 bonds, a 5-year 10% annual coupon Bond X and a 10-year 10% annual...

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George purchased 2 bonds, a 5-year 10% annual coupon Bond X and a 10-year 10% annual coupon Bond Y, both with a par value of $1,000 and a 7% yield to maturity (YTM) on the purchase day. However, the market interest rate increases to 9% for both bonds right after he purchased the 2 bonds. Both bonds are non-callable. Would Bond X have a smaller percentage decrease in price after the change in yield, relative to Bond Y? Please explain. (TOTAL: 5 marks) George purchased 2 bonds, a 5-year 10% annual coupon Bond X and a 10-year 10% annual coupon Bond Y, both with a par value of $1,000 and a 7% yield to maturity (YTM) on the purchase day. However, the market interest rate increases to 9% for both bonds right after he purchased the 2 bonds. Both bonds are non-callable. Would Bond X have a smaller percentage decrease in price after the change in yield, relative to Bond Y? Please explain. (TOTAL: 5 marks)

Answer rating: 100% (QA)

To determine whether Bond X would have a smaller percentage decrease in price relative to Bond Y aft... View the full answer