Question

2. Bond yields and prices over time A bond investor is analyzing the following annual coupon bonds: Annual Coupon Rate Issuing Company Johnson Enterprises Smith Incorporated Irwin Metalworks 12% 995 Each bond has 10 years until maturity and has the same risk. Their yield to maturity (YTM) is 9%. Interest rates are assumed to remain constant over the next 10 years. Label the curves on the following graph to indicate the path that each bond's price, or value, is expected to follow. BOND VALUE $1 1200 1100 42 O YEARS TO MATURITY Based on the preceding information, which of the following statements are true? Check all that apply. Johnson's bands have the highest expected total return. The expected capital gains yield for Smith's bonds is negative. The bonds have the same expected total return. The expected capital gains yield for Smith's bonds is greater than 12%. Johnson just registered and issued its bonds, which will be sold in the bond market for the first time. Johnson's bonds would be referred to as

Answer 1

Based on the preceding information the following statement are true.

1. The Bonds have same expected total return

2. The Expected capital gain for Irwin's bonds is negative

Smith just registered and issued its bonds which will be sold in the bond market for the first time. Smith's bonds would be referred to as A NEW ISSUE .