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Treasury Securities Yield to Maturity

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All treasury securities has a yield to maturity of 7% so the yield curve is flat. If the yield to maturity on all Treasuries were to decline to 6%, which of the following bonds would have the largest percentage increase in price and why?
a. 15 year zero coupon Treasury bond
b. 12 year Treasury bond with 10% annual coupon
c. 15 year Treasury bond with a 12% annual coupon
d. 2 year zero coupon treasury bond
e. 2 year Treasury bond with a 15& annual coupon

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Solution Summary

This solution discusses the impacts of lower yield to maturity on the price of bonds.

Solution Preview

As the YTM decrease, the price of the bonds would increase. However, the increase in price is higher for:

1. Bonds with longer ...

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