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a. A three-year zero-coupon bond or a five-year zero-coupon bond? b. A three-year zero-coupon bond or a three-year 4% coupon bond? c. A two-year 5% coupon bond or a two-year 6% coupon bond?

a. A three-year zero-coupon bond or a five-year zero-coupon bond? b. A three-year zero-coupon bond or a three-year 4% coupon bond? c. A two-year 5% coupon bond or a two-year 6% coupon bond?

Intermediate Financial Management (MindTap Course List)
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter4: Bond Valuation
Section: Chapter Questions
Problem 17P: Bond Value as Maturity Approaches An investor has two bonds in his portfolio. Each bond matures in 4...
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For each of the following pairs of Treasury securities (each with $1,000 par value), identify which will have the higher price: a. A three-year zero-coupon bond or a five-year zero-coupon bond? b. A three-year zero-coupon bond or a three-year 4% coupon bond? c. A two-year 5% coupon bond or a two-year 6% coupon bond? a. A three-year zero-coupon bond or a five-year zero-coupon bond? Which will have the higher price? (Select the best choice below.) O A. A three-year zero-coupon bond, because the present value is received sooner and the future value is higher. O B. A five-year zero-coupon bond, because the future value is received later and the present value is higher. OC. A three-year zero-coupon bond, because the future value is received sooner and the present value is higher. O D. A five-year zero-coupon bond, because the present value is received sooner and the future value is higher. b. A three-year zero-coupon bond or a three-year 4% coupon bond? Which will have the higher price? (Select the best choice below.) O A. Since they both have a three-year maturity, they are equal in price. B. The three-year 4% coupon bond, because the 4% coupon bond pays interest payments; whereas the zero-coupon bond is a pure discount bond. O C. The three-year zero-coupon bond, because the zero-coupon bond is risk-free. D. The three-year zero-coupon bond, because a pure discount bond pays higher interest payments than a 4% coupon bond. c. A two-year 5% coupon bond or a two-year 6% coupon bond? Which will have the higher price? (Select the best choice below.) O A. Because they are both two-year coupon bonds, they are equal in price. O O B. The two-year 6% coupon bond, because the coupon (interest) payments are higher, even though the timing is the same. C. The two-year 5% coupon bond, because the coupon (interest) payments are higher, even though the timing is the same. D. The two-year 5% coupon bond, because the future value will be received sooner, therefore the present value must be higher.
Transcribed Image Text:For each of the following pairs of Treasury securities (each with $1,000 par value), identify which will have the higher price: a. A three-year zero-coupon bond or a five-year zero-coupon bond? b. A three-year zero-coupon bond or a three-year 4% coupon bond? c. A two-year 5% coupon bond or a two-year 6% coupon bond? a. A three-year zero-coupon bond or a five-year zero-coupon bond? Which will have the higher price? (Select the best choice below.) O A. A three-year zero-coupon bond, because the present value is received sooner and the future value is higher. O B. A five-year zero-coupon bond, because the future value is received later and the present value is higher. OC. A three-year zero-coupon bond, because the future value is received sooner and the present value is higher. O D. A five-year zero-coupon bond, because the present value is received sooner and the future value is higher. b. A three-year zero-coupon bond or a three-year 4% coupon bond? Which will have the higher price? (Select the best choice below.) O A. Since they both have a three-year maturity, they are equal in price. B. The three-year 4% coupon bond, because the 4% coupon bond pays interest payments; whereas the zero-coupon bond is a pure discount bond. O C. The three-year zero-coupon bond, because the zero-coupon bond is risk-free. D. The three-year zero-coupon bond, because a pure discount bond pays higher interest payments than a 4% coupon bond. c. A two-year 5% coupon bond or a two-year 6% coupon bond? Which will have the higher price? (Select the best choice below.) O A. Because they are both two-year coupon bonds, they are equal in price. O O B. The two-year 6% coupon bond, because the coupon (interest) payments are higher, even though the timing is the same. C. The two-year 5% coupon bond, because the coupon (interest) payments are higher, even though the timing is the same. D. The two-year 5% coupon bond, because the future value will be received sooner, therefore the present value must be higher.
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