Bond X and Bond Y are both issued by the same company. Each of the bonds has a f
ID: 2468776 • Letter: B
Question
Bond X and Bond Y are both issued by the same company. Each of the bonds has a face value of $100,000 and each matures in 10 years. Bond X pays 8% interest while Bond Y pays 7%. The current market rate of interest is 7%. Which of the following is correct?
Question 30 options:
Bond Y will sell for more than Bond X
Bond X will sell for more than Bond Y.
Both bonds will sell at a premium
Both bonds will sell for the same amount.
Bond Y will sell for more than Bond X
Bond X will sell for more than Bond Y.
Both bonds will sell at a premium
Both bonds will sell for the same amount.
Explanation / Answer
Bond X will sell for more than Bond Y.
Reason- The interest rate on bond x is higher than the market value of interest rate hence the price would be higher
Bond X will sell for more than Bond Y.
Reason- The interest rate on bond x is higher than the market value of interest rate hence the price would be higher