Question
22. Consider a 2-year zero-coupon bond and a 2-year coupon bond that both have a face value of $100. The coupon bond has a coupon
22. Consider a 2-year zero-coupon bond and a 2-year coupon bond that both have a face value of $100. The coupon bond has a coupon interest rate equal to 5%. Both bonds currently have the same yield to maturity of 6%. Which statement is FALSE? A) Both bonds are trading at a discount.
B) The zero-coupon bond is trading at a discount but the coupon bond is trading at a premium.
C) The internal rate of return for both bonds is equal to each other. D) The coupon bond declines stronger in price than the zero-coupon bond when their yield to maturity rises from 6% to 7% (compare the declines in $ terms). Ans: B
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