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Question
Corporate Bond A returns 5% of its cost in PV terms in each of the first five years and 75% of its value in the sixth year. Corporate Bond B returns 8% of its cost in PV terms in each of the first five years and 60% of its cost in the sixth year. If A and B have the same required return, which of the following is/are true?
I. Bond A has a bigger coupon than Bond B.
II. Bond A has a longer duration than Bond B.
III. Bond A is less price-volatile than Bond B.
IV. Bond B has a higher FPV than Bond A.
A. III only
B. I, III, and IV only
C. I, II, and IV only
D. II and IV only
E. I, II, III, and IV
Answer
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