Consider two bonds, F and G. Both bonds presently are selling at their par value of $1,000. Each pays interest of $90 annually. Bond F will mature in 15 years while bond G will mature in 26 years. If the yields to maturity on the two bonds change from 9% to 10%,
A. both bonds will increase in value, but bond F will increase more than bond G.
B. both bonds will increase in value, but bond G will increase more than bond F.
C. both bonds will decrease in value, but bond F will decrease more than bond G.
D. both bonds will decrease in value, but bond G will decrease more than bond F.
E. None of the options are correct.
D. both bonds will decrease in value, but bond G will decrease more than bond F.
The longer the maturity, the greater the price changes when interest rates change.
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