Mr. Donald, an analyst, is comparing two discounted 8% AA bonds. Both have 20 years to maturity. One of the bonds is callable in 4 years and the other is callable in 9 years. If interest rates fall, which will have the greatest increase in price?

Mr. Donald, an analyst, is comparing two discounted 8% AA bonds. Both have 20 years to maturity. One of the bonds is callable in 4 years and the other is callable in 9 years. If interest rates fall, which will have the greatest increase in price?

Mr. Donald, an analyst, is comparing two discounted 8% AA bonds. Both have 20 years to maturity. One of the bonds is callable in 4 years and the other is callable in 9 years. If interest rates fall, which will have the greatest increase in price?


A) Both will decrease the same.

B) The bond with the 9-year call.

C) The bond with the 4-year call.

D) Both will increase the same.



Answer: A) The bond with the 9-year call.


Learn More :