Question

A bond investor is analyzing the following annual coupon bonds:

Issuing Company	Annual Coupon Rate
Smith Corporation	6%
Irwin Incorporated	12%
Johnson, LLC	9%

Each bond has 10 years until maturity and the same level of risk. Their yield to maturity (YTM) is 9%. Interest rates are assumed to remain constant over the next 10 years.

  

Using the previous information, correctly match each curve on the graph to it’s corresponding issuing company. (Hint: Each curve indicates the path that each bond’s price, or value, is expected to follow.)

Curve A
Curve B
Curve C

Based on the preceding information, which of the following statements are true? Check all that apply.

The expected capital gains yield for Irwin Incorporated’s bonds is greater than 12%.

Smith Corporation’s bonds have the highest expected total return.

The bonds have the same expected total return.

The expected capital gains yield for Irwin Incorporated’s bonds is negative.

Smith Corporation just registered and issued its bonds, which will be sold in the bond market for the first time. Smith Corporation’s bonds would be referred to as     .

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE