Consider two bonds, X and Y. Both bonds presently are selling at their par value of Rs.1000. Each pays interest of Rs.150 annually. Bond X will mature in 6 years while bond Y will mature in 7 years.

Consider two bonds, X and Y. Both bonds presently are selling at their par value of Rs.1000. Each pays interest of Rs.150 annually. Bond X will mature in 6 years while bond Y will mature in 7 years.

If the yields to maturity on the two bonds decrease from 15% to 12%:
A . Both bonds will increase in value, but bond X will increase more than bond Y
B . Both bonds will decrease in value, but bond X will decrease more than bond Y
C . Both bonds will increase in value, but bond Y will increase more than bond X
D . Both bonds will decrease in value, but bond Y will decrease more than bond X

View Answer

Answer: C