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
As the YTM decrease, the price of the bonds would increase. However, the increase in price is higher for:
1. Bonds with longer ...
This solution discusses the impacts of lower yield to maturity on the price of bonds.