Andre owns a corporate bond with a coupon rate of 8% that matures in 10 years.Ruth owns a corporate bond with a coupon rate of 12% that matures in 25 years.If interest rates go down,then

Question

Quizplus · Accepted Answer

When interest rates go down, the value of existing bonds with higher coupon rates increases because they become more valuable to investors who are seeking higher yields. Therefore, both Andre's and Ruth's bonds will increase in value. The longer maturity of Ruth's bond may be a factor, but it is not significant enough to make a difference in this case. Option A is incorrect because Andre's bond will increase in value along with Ruth's bond. Option D is also incorrect because changes in interest rates affect the value of existing bonds.

Andre Owns a Corporate Bond with a Coupon Rate of 8