If you expect that interest rates will decline,it would make sense to switch from a $10000 par value bond with a 4 percent semi-annual coupon maturing in three years to a bond with the same features,except maturing in 12 years.

Question

Quizplus · Accepted Answer

If interest rates are expected to decline, the price of existing bonds will increase, resulting in a capital gain. By switching to a bond with a longer maturity, the investor can lock in a higher yield for a longer period of time, potentially resulting in higher returns. Therefore, it would make sense to switch to a bond with the same features, except maturing in 12 years.

If You Expect That Interest Rates Will Decline,it Would Make