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
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.
