Assume the Federal Reserve raises interest rates (the yield curve makes an instantaneous parallel shift up of 1.0%) which causes investors to instantaneously view highly leveraged companies as riskier investments (the corporate credit spread widens by 1.5%). When comparing the responses of Bonds A-C, which of the following is TRUE:
Bond A: 10 Year Treasury
Bond B: AAA Rated (investment grade) 10 Year Corporate Bond
Bond C: CCC Rated (high yield) 10 Year Corporate Bond
A) Bond C’s price would decrease more than bond A or B
B) Bond C’s price would increase more than bond A or B
C) Bond A’s price would increase more than bond B or C
D) Bond A’s price would decrease more than bond B or C
E) Bond B’s price would increase more than bond A but less than bond C