Consider two bonds, A and B. Both bonds presently are selling at their par value

Question

Consider two bonds, A and B. Both bonds presently are selling at their par value of $1,000. Each pay interest of $120 annually. Bond A will mature in 5 years while bond B will mature in 6 years. If the yields to maturity on the two bonds change from 12% to 14%, _________. Answer a. both bonds will increase in value but bond A will increase more than bond B b. both bonds will increase in value but bond B will increase more than bond A c. both bonds will decrease in value but bond A will decrease more than bond B d. both bonds will decrease in value but bond B will decrease more than bond A

Explanation / Answer

d) both bonds will decrease in value but bond B will decrease more than bond A

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