A 10-year Treasury bond has an 8% coupon, and an 8-year Treasury bond has a 10% coupon. Both bonds have the same yield to maturity. If the yield to maturity of both bonds increases by the same amount, which of the following statements would be CORRECT?
A) The prices of both bonds will decrease by the same amount.
B) Both bonds would decline in price, but the 10-year bond would have
The greater percentage decline in price.
C) The prices of both bonds would increase by the same amount.
D) One bond's price would increase, while the other bond's price would
Decrease.
E) The prices of the two bonds would remain constant.

Question

Quizplus · Accepted Answer

The 10-year bond has a longer duration than the 8-year bond, meaning it is more sensitive to interest rate changes. Therefore, it will experience a greater percentage decline in price when yields increase.

A 10-Year Treasury Bond Has an 8% Coupon, and an 8-Year