Consider two bonds, a and b. both bonds presently are selling at their par value of $1,000. each pays interest of $120 annually. bond a will mature in 5 years, while bond b will mature in 6 years. if the yields to maturity on the two bonds change from 12% to 14%, a. both bonds will increase in value but bond a will increase more than bond bb. both bonds will increase in value but bond b will increase more than bond ac. both bonds will decrease in value but bond a will decrease more than bond bd. both bonds will decrease in value but bond b will decrease more than bond a

D. Both bonds will decrease in value but bond B will decrease more than bond A.

Explanation:

A given bond is worth the same amount when it matures, so an increase in interest rates means that it must have a lower current value to grow to the same end value.

Comparably, bond B will grow more than bond A throughout its term, so the initial value decreases by more than bond A to compensate.

differential cost

Explanation:

When you are elaborating a differential cost analysis between two alternative projects or actions, you are looking for the difference in total costs between both alternatives.

For example, you might elaborate a cost analysis to decide whether to continue or stop the production of a certain good. What are the costs associated with stopping the production versus thee profitability of continuing the production.