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Question
On May 1, 2007, Joe Hill is considering one of the following newly issued 10-year AAA corporate bonds.
| Description | Coupon | Price | Callable | Call Price | ||||
| Wildwood, due May 1, 2015 | 5 | % | 100 | noncallable | NA | |||
| Asbury, due May 1, 2015 | 5.4 | % | 100 | currently callable | 102 | |||
Suppose market interest rates decline by 100 basis points (i.e., 1%). The effect of this decline would be ________.
A) the price of the Wildwood bond would decline by more than the price of the Asbury bond
B) the price of the Wildwood bond would decline by less than the price of the Asbury bond
C) the price of the Wildwood bond would increase by more than the price of the Asbury bond
D) the price of the Wildwood bond would increase by less than the price of the Asbury bond
Answer
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