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Which of the following statements is most correct? a.         All else equal, if a bond’s yield to...

Which of the following statements is most correct?

a.         All else equal, if a bond’s yield to maturity increases, its price will fall.

b.         All else equal, if a bond is down graded by the rating agencies its yield to maturity will increase.

c.         If a firm has two bond issues that are identical except one is subordinate to the other, the subordinate issue will have a higher yield to maturity than the other issue.

d.         A B and C are correct.

e.         None of the above are correct

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Answer #1

Option D is correct:  A B and C are correct.

A. Bond's price and yield to maturity are inversely related to each other, so all else equal, if a bond’s yield to maturity increases, its price will fall.

B. If a bond is down graded by the rating agencies its yield to maturity will increase because the risk of the bond increases.

C.  If a firm has two bond issues that are identical except one is subordinate to the other, the subordinate issue will have a higher yield to maturity than the other issue. Because the subordinate bond has a lower preference of getting paid.

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