Which of the following statements best describes interest rates?
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You hold two bonds. One is a 15-year, zero coupon issue, and the other is a 15-year bond that pays a 7% annual coupon. The same market rate, 7%, applies to both bonds. If the market rate rises from the current level, the zero coupon bond will experience the smaller percentage decline.
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You hold two bonds. One is a 15-year, zero coupon issue, and the other is a 15-year bond that pays a 7% annual coupon. The same market rate, 7%, applies to both bonds. If the market rate rises from the current level, the zero coupon bond will experience the same percentage decline.
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An increase in interest rates will cause the prices of outstanding bonds to rise, whereas a decrease in rates will cause bond prices to fall.
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An increase in interest rates will cause the prices of outstanding bonds to fall, whereas a decrease in rates will cause bond prices to rise.
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