Question: You are considering three different bonds for your portfolio. Each bond has a 10-year maturity and a yield to maturity of 10%. Bond X has
You are considering three different bonds for your portfolio. Each bond has a 10-year maturity and a yield to maturity of 10%. Bond X has an 12% annual coupon, Bond Y has a 10% annual coupon, and Bond Z has a 8% annual coupon. Which of the following statements is CORRECT
| a. | Bond X has the greatest reinvestment rate risk. |
| b. | If market interest rates decline, all of the bonds will have an increase in price, and Bond X will have the largest percentage increase in price. |
| c. | If market interest rates remain at 10%, Bond Z's price will be 10% higher one year from today. |
| d. | If market interest rates increase, Bond Z's price will increase, Bond X's price will decline, and Bond Y's price will remain the same. |
| e. | If the bonds' market interest rates remain at 10%, Bond X's price will be lower one year from now than it is today. |
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