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Bond A has a 9% annual coupon, while Bond B has a 7% annual coupon. Both bonds have the same maturity, a face value of $1,000, and an 8% yield to maturity. Which of the following statements is CORRECT:
A. Bond A trades at a discount, whereas Bond B trades at a premium.
B. If market interest rates increase, Bond A’s price will increase, and Bond B’s price will decline.
C. If the yield to maturity on each bond increases to 9%, the price of both bonds will decrease.
D. none of the above is correct.
E. A and B are both correct
Being able to apply the concepts and formulas covered in this chapter is important to success in the financial field. Companies spend a lot of time analyzing the risks associated with issuing bonds, as well as the various pricing and yield options a ..
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