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Yield and interest rates

Which of the following is most correct?

a. The yield on a 2 year corporate bond will always exceed the yield on a 2 year treasury bond.
b. The yield on a 3 year corporate bond will always exceed the yield on a 2 year corporate bond.
c. The yield on a 3 year treasury bond will always exceed the year on a 2 year treasury bond.
d. All of the answers above are correct.
e. Statements a and c are correct.

If interest rates fall from 8 percent to 7 percent, which of the following bonds will have the largest percentage increase in its value?

a. a 10 year zero coupon bond
b. a 10 year bond with a 10 percent semiannual coupon
c. a 10 year bond with a 10 percent annual coupon
d. a 5 year zero coupojn bond
e. 5 year bond with a 12 percent annual coupon

Solution Preview

yield and interest rates
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Which of the following is most correct?

a. The yield on a 2 year corporate bond will always exceed the yield on a 2 year treasury bond.
This is true as corporate bond have some default risk associated with them whereas treasury bonds are treated as risk free. So there is risk premium attached.

b. The ...

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