40. Bond X pays an annual coupon of 8%, Bond Y pays a 10% annual coupon, and Bond Z pays a 12% annual coupon. The notes have a ten-year term and a ten-percent yield to maturity. Which of the comments below is the most accurate? a. Bond X has the highest chance of reinvestment pace. b. Bond Z's price would be 10% higher one year from today if market interest rates hold at 10%. c. As market interest rates rise, the price of Bond X will rise, the price of Bond Z will fall, and the price of Bond Y will stay unchanged. d. Bond Z's price would be lower one year from now than it is today if market interest rates hold at 10%. e. Once market interest rates fall, all of the bonds would have a price rise, with Bond Z seeing the highest percentage increase.
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
40. Bond X pays an annual coupon of 8%, Bond Y pays a 10% annual coupon, and Bond Z pays a 12% annual coupon. The notes have a ten-year term and a ten-percent yield to maturity. Which of the comments below is the most accurate?
a. Bond X has the highest chance of reinvestment pace.
b. Bond Z's price would be 10% higher one year from today if market interest rates hold at 10%.
c. As market interest rates rise, the
d. Bond Z's price would be lower one year from now than it is today if market interest rates hold at 10%.
e. Once market interest rates fall, all of the bonds would have a price rise, with Bond Z seeing the highest percentage increase.
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