Question

Which of the assertions about the 4 bonds described in the table is true? All 4 bonds have face values of $1,000 and pay semi-annual coupons with the next coupon due in 6 months. Note that Y>0, C>0, and T>0, and that all bonds with yield-to-maturity of Y have the same yield-to-maturity, all bonds with coupon rate of C have the same coupon rate, and all bonds with time-to-maturity of T have the same time-to- maturity. Finally, note that CA > CB >O and YZ > YX>0. Bond Coupon rate Yield-to-maturity Time-to-maturity A CA Y В СВ у т х с Үх та CYZT Bond A has a higher value than bond B and bond Z has a higher value than bond X Bond A has a higher value than bond B and bond X has a higher value than bond Z Bond B has a higher value than bond A and bond X has a higher value than bond Z Bond B has a higher value than bond A and bond Z has a higher value than bond X None of the above assertions is true

Answer 1

IF ANY QUERY, FEEL FREE TO ASK IN COMMENTS Solution We know that Bonds with same Yield to maturity and Time to maturity but with higher Coupon rate shall have higher value than with lower coupon rate. Hence, here Bond A has higher value than bond B. We know that Bonds with same Coupon rate and Time to maturity but with higher Yield to maturity shall have lower value than with lower Yield to maturity. Hence, here Bond X has higher value than bond z. Hence, 2nd option Bond A has higher value than bond B and Bond X has higher value than bond Z is correct.