The YTMs of three $1,000 face value bonds that mature in 10 years and have the s

Question

The YTMs of three $1,000 face value bonds that mature in 10 years and have the same level of risk are equal. Bond A has an 8% annual coupon, Bond B has a 10% annual coupon, and Bond C has a 12% annual coupon. Bond B sells at par. Assuming interest rates remain constant for the next 10 years, which of the following statements is CORRECT? Since the bonds have the same YTM, they should all have the same price, and since interest rates are not expected to change, their prices should all remain at their current levels until maturity. Bond C sells at a premium (its price is greater than par), and its price is expected to increase over the next year. Bond A sells at a discount (its price is less than par), and its price is expected to increase over the next year. Over the next year, Bond A's price is expected to decrease, Bond B's price is expected to stay the same, and Bond C's price is expected to increase. Bond A's current yield will increase each year

Explanation / Answer

. Bond C sells at a premium (its price is greater than par), and its price is expected to increase over the next year.

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