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?

Question

Quizplus · Accepted Answer

When interest rates decline, the prices of existing bonds increase because their fixed coupon payments become more attractive compared to new bonds issued at the lower rates. Longer-duration bonds, like the 15-year bond in this case, are more sensitive to interest rate changes and thus would experience a larger percentage increase in price compared to shorter-duration bonds, like the 10-year bond.

Assume That a 10-Year Treasury Bond Has a 12% Annual