BM2102 Introduction to Finance (PRD1 A 2024/25) Course Materials & Test Answers | moodle4.city.ac.uk

Suppose there are three government bonds as follows:

Bond has a maturity of years and pays an annual coupon of

The

yield curve is flat. As interest rates change the whole curve moves up or down

in parallel (or equivalently, there is a single interest rate that varies

through time)

Which

of the following statements is correct:

As the interest rate rises, all three bonds will fall in price but Bond C will fall proportionately the most because it has the longest duration. Bond B will fall the least because it has the shortest duration

✅

As the interest rate rises, all three bonds will rise in price but Bond B will rise proportionally the most because it has the longest duration. Bond A will rise the least because it has the shortest duration

❌

As the interest rate rises, all three bonds will fall in price but Bond B will fall proportionately the most because it has the longest duration. Bond C will fall the least because it has the shortest duration

❌

As the interest rate rises, all three bonds will fall in price but Bond C will fall proportionately the most because it has the shortest duration. Bond A will fall the least because it has the longest duration

❌

As the interest rate rises, all three bonds will rise in price but Bond C will rise proportionally the most because it has the longest duration. Bond B will rise the least because it has the shortest duration

❌

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BM2102 Introduction to Finance (PRD1 A 2024/25)

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