1. The Corner Grocer has an 8-year, 7 percent annual coupon bond outstanding with a $1,000 par value. The bond has a yield to maturity of 6.4 percent. Which one of the following statements is correct if the yield to maturity suddenly increases to 7.3 percent?
a. The bond price will decrease by $55.21.
b. The bond price will increase by 5.25 percent.
c. The bond price will decrease by 5.11 percent.
d. The bond price will increase by $58.69.
e. The bond price will decrease by 5.25 percent.
2. Which of the following statement is correct?
A. If a bond is selling at a discount to par, its current yield will be greater than its yield to maturity.
B. All else equal, bonds with longer maturities have less interest rate (price) risk than bonds with shorter maturities.
C. If a bond is selling at its par value, its current yield equals its capital gains yield.
D. If a bond is selling at a premium, its current yield will be less than its capital gains yield.
E. All else equal, bonds with larger coupons have less interest rate (price) risk than bonds with smaller coupons.