Answered: . You are considering purchasing only…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 17P

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1. You are considering purchasing only one of the two bonds issued 24 Hours Corporation. Bond A and Bond B have a 7% coupon and 9% coupon, respectively; both are paid annually. The two bonds have a face value of Php 1,000 and will mature in 10 years. Assume that the yield to maturity of 8% for both bonds will remain unchanged over the next 10 years. Which of the following statements is most correct?

A. Today, Bond B has a lower price than Bond A, but one year from now, the price of both bonds will be the same.

B. Today, Bond B has a higher price than Bond A, but two years from now, the price of both bonds will be the same.

C. Today, both bonds have the same price, and the price of each bond is expected to remain constant until the bonds mature.

D. One year from now, the price of Bond A will be higher than its price today.

E. The current yield of Bond A is greater than 8 percent.

2. Which of the following statements concerning present value is true?

A. Statement 1: For a given future value at a specified time in the future, the higher the interest rate (or discount rate), the lower the present value.

B. Statement 2: For a given interest rate (discount rate), the further into the future the future value will be received, the lower its present value.

C. Both Statements 1 and 2

D. Neither of the two statements

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