Question

6. Bond yields and prices over time A bond Investor is analyzing the following annual coupon bonds: Annual Coupon Rate Issuing Company Irwin, LLC Johnson Corporation Smith Incorporated 12% 9% Each bond has 10 years until maturity and the same level of risk. Their yield to maturity (YTM) is 9%. Interest rates are assumed to remain constant over the next 10 years. BOND VALUE ISI 10 8 6 4 2 0 YEARS TO MATURITY Using the previous information, correctly match each curve on the graph to it's corresponding Issuing company. (Hint: Each curve indicates the path that each bond's price, or value, is expected to follow.) Curve A Curve B Curve C Based on the preceding Information, which of the following statements are true? Check all that apply. Smith Incorporated's bonds are a better investment than Johnson Corporation's bonds. Johnson Corporation's bonds are a better investment than Irwin, LLC's bonds. All of the bonds will have the same value when they reach maturity. The expected capital gains yield for Irwin, LLC's bonds is positive. Irwin, LLC just registered and issued its bonds, which will be sold in the bond market for the first time. Irwin, LLC's bonds would be referred to as

Answer 1

1.
Smith Incorporated will sell at par as yield is equal to coupon rate

Hence, B is Smith Incorporated

Irwin will sell at discount or less than par as yield is more than coupon rate

Hence, C is Irwin

A is Johnson

2.
All of the bonds have the same value when they reach maturity

The expected capital gains yield for Irwin, LLC's bonds is positive

3.
a new issue