Assume that a 10-year treasury bond has a 12% annual coupon, while a 15-year t-bond has an 8% annual coupon. assume also that the yield curve is flat, and all treasury securities have a 10% yield to maturity. which of the following statements is correct
a)if interest rates decline, the prices of both bonds will increase, but the 15-year bond would have a larger percentage increase in price.
b)if interest rates decline, the prices of both bonds will increase, but the 10-year bond would have a larger percentage increase in price.
c)the 10-year bond would sell at a discount, while the 15-year bond would sell at a premium.
d)the 10-year bond would sell at a premium, while the 15-year bond would sell at par.
e)if the yield to maturity on both bonds remains at 10% over the next year, the price of the 10-year bond would increase, but the price of the 15-year bond would fall

A)If interest rates decline, the prices of both bonds will increase, but the 15-year bond would have a larger percentage increase in price.

TRUE

As it has more time to maturity it will have a higher time expose to the rate therefore, will be more volatile against the rate fluctuations

Explanation:

The 10-year ond is issued at premium, above par as the coupon rate 12% is higher than market rate 10%. Each year will decrease the market value to come closer to maturity date.

The 15-year ond is issued at discount, below par as the coupon rate 8% is lower than market rate 10%. Each year will increase the market value to come closer to maturity date.

rational decision making is a multi-step process for making choices between alternatives. the process of rational decision making favors logic, objectivity, and analysis over subjectivity and insight. the word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense.

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