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Three $1,000 face value, 10-year, noncallable, bonds have the same amount of risk, hence their YTMs are equal. Bond 8 has an 8% annual coupon, Bond 10 has a 10% annual coupon, and Bond 12 has a 12% annual coupon. Bond 10 sells at par. Assuming that interest rates remain constant for the next 10 years, which of the following statements is CORRECT? a. 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 b. Bond 8 sells at a discount (its price is less than par), and its price is expected to increase over the next year. O c. Over the next year, Bond 8s price is expected to decrease, Bond 10s price is expected to stay the same, and Bond 12s price is expected to increase. o d. Bond 12 sells at a premium (its price is greater than par), and its price is expected to increase over the next year. Oe. Bond 8s current yield will increase each year.
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Answer #1

Option b is correct

Bonds sell at par when the market interest rate equals the coupon rate. Since, bond 10 sells at par, market rate is 10%.

Bond 8 sells at a discount and its price is expected to increase over the next year option is correct

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