QUESTION 8 An analyst was able to gather the following financial information concerning bonds he has...
QUESTION 8
- An analyst was able to gather the following financial information concerning bonds he has been observing as part of a research report:
|
|
Coupon Rate |
Term to Maturity |
Yield-to-Maturity |
|
X |
9% |
7 years |
10% |
|
Y |
9% |
9 years |
12% |
|
Z |
9% |
11 years |
14% |
- If the market discount rate suddenly increases by 150 bps, which bond will experience the biggest drop in price?
|
a. |
X |
|
|
b. |
Y |
|
|
c. |
Z |
Homework Answers
Bond with highest years to maturity and yield to maturity is most volatile bond for changes in market interest rates/required rates. Here, highest terms to maturity is 11 years and highest yield to maturity is 14%.
Hence, correct option is c. Z
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QUESTION 8
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concerning four corporate bonds, all of which have a face value of
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a.
Bond 1
b.
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c.
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d.
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