Five years ago Rogue Construction Inc. issued 20-year maturity fixed-r

Five years ago Rogue Construction Inc. issued 20-year maturity fixed-rate bonds at par with a 10% coupon rate. Today those same bonds carry a 14% yield to maturity. Which of the following statements about this bond issue could be TRUE?

A) Since issue, the economy-wide rate of inflation has increased.
B) The market believes there is greater risk associated with this bond than at the issue date.
C) Both A and B may be true.
D) Neither A nor B could be true.

ANSWER

C