1. Andre owns a corporate bond with a coupon rate of 8% that matures in 10 years

Question

1. Andre owns a corporate bond with a coupon rate of 8% that matures in 10 years. Ruth owns a corporate bond with a coupon rate of 12% that matures in 25 years. If interest rates go down, then

A. the value of both bonds will remain the same because they were both purchased in an earlier time period before the interest rate changed.

B. the value of Andre's bond will decrease and the value of Ruth's bond will increase

C. the value of Ruth's bond will decrease more than the value of Andre's bond due to the longer time to maturity

D. the value of both bonds will increase

Explanation / Answer

Correct option:

C. the value of Ruth's bond will decrease more than the value of Andre's bond due to the longer time to maturity

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