Question

Two 20-year corporate bonds are issued at par, with stated interest rates of 10%. One issue is puttable at par in 5 years, while the other is puttable at par in 10 years. If interest rates rise by 200 basis points shortly after issuance, which statement is TRUE

Answer 1

Answer:

The answer is "The 10 year-long bond will depreciate more than just in the 5-year bond".

Explanation:

Some of the information is missing in the question. so, the correct answer can be described as follows:

• Where a bond will fall around par throughout the near future, that buyer would be unable to return the bond to an issuer long as the money declines as a result of rising bond yields.  
• This bond is set in place in ten years will, therefore, depreciate more than a 5-year bond if interest rates rise, that's why the 10 year-long bonds will depreciate more than in the 5-year bond.