Answer:
Step-by-step explanation:
Complete question:
Is the decrease in a bond's price corresponding to an increase in its yield to maturity more or less than the price increase resulting from a decrease in the yield of equal magnitude?
The increase will be larger than the decrease in price
Long term Treasury bonds currently are selling at yields to maturity of nearly 6%. You expect interest rates to fall. the rest of the market thinks they will remain unchanged over the next year. In each question, choose the bond that will provide the higher capital gain if you are correct:
A Baa rated bond w coupon rate 6% and time to maturity 20 or Aaa rated?
An A-rated bond with a coupon rate of 6% or 4% and maturity 20 yeas and callable at 105?
A 4% or 7% coupon noncallable T-bond with maturity 20 years and YTM = 6%?
Answer:
a) An Aaa-rated bond with coupon 6% and time to maturity 20 years
b) an a-rated bond with coupon rate 4% and maturity 20 years, callable at 105
c) a 4% coupon noncallable T-bond with maturity 20 years and YTM = 6%