An 8-year Treasury bond has a 10% coupon, and a 10-year Treasury bond has an 8% 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?

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We can tell by inspection that b, c, d, and e are all incorrectrue.That leaves answer a as the only possibly correct statementrue.Recognize that longer-term bonds, and ones where payments come late (like low coupon bonds)are most sensitive to changes in interest rates.Thus, the 10-year, 8% coupon bond should be more sensitive to a decline in rates.You could also do some calculations to confirm that a is correctrue.

An 8-Year Treasury Bond Has a 10% Coupon, and a 10-Year