Question

Which of the following statements is CORRECT?

One advantage of a zero coupon Treasury bond is that no one who owns the bond has to pay any taxes on it until it matures or is sold.

Long-term bonds have less price risk but more reinvestment risk than short-term bonds.

If interest rates increase, all bond prices will increase, but the increase will be greater for bonds that have less price risk.

Relative to a coupon-bearing bond with the same maturity, a zero coupon bond has more price risk but less reinvestment risk.

Long-term bonds have less price risk and also less reinvestment risk than short-term bonds.

Answer #1

The correct answer is Option D

The Zero coupon bond has Higher price risk because it pays all the amount at the date of the maturity, So, smaller percentage change can lead to greater price risk and it has low reinvestment risk because it doesn't pay interest till the maturity.

The Treasury bond zero coupon bond is considered as risk free asset and it is tax exempt also long term bonds have greater price risk than short term bonds because the cash flows are discounted for greater period of time.

Which of the following statements is CORRECT?
One advantage of a zero-coupon Treasury bond is that no one who
owns the bond has to pay any taxes on it until it matures or is
sold.
Long-term bonds have less price risk but more reinvestment risk
than short-term bonds.
If interest rates increase, all bond prices will increase, but
the increase will be greater for bonds that have less price
risk.
Relative to a coupon-bearing bond with the same maturity, a...

If the pure expectations theory of the term structure is
correct, which of the following statements is CORRECT?
A. An upward sloping yield curve would imply that interest rates
are expected to be lower in the future.
B. If a 1-year Treasury bill has a yield to maturity of 7% and a
2-year Treasury bill has a yield to maturity of 8%, this would
imply the market believes that 1-year rates will be 7.5% one year
from now.
C. The...

Which of the following statements is? FALSE?
A. The simplest type of bond is a zero?coupon bond.
B. Prior to its maturity? date, the price of a zero?coupon bond is
always greater than its face value.
C. The amount of each coupon payment is determined by the coupon
rate of the bond.
D. Treasury bills are U.S. government bonds with a maturity of up
to one year.

An investor has two bonds in his portfolio that have a face
value of $1,000 and pay a 10% annual coupon. Bond L matures in 17
years, while Bond S matures in 1 year.
a. What will the value of the Bond L be if the going interest
rate is 7%, 8%, and 11%? Assume that only one more interest payment
is to be made on Bond S at its maturity and that 17 more payments
are to be made...

An investor has two bonds in his portfolio that have a face
value of $1,000 and pay a 12% annual coupon. Bond L matures in 20
years, while Bond S matures in 1 year.
A. What will the value of the Bond L be if the going interest
rate is 7%, 8%, and 13%? Assume that only one more interest payment
is to be made on Bond S at its maturity and that 20 more payments
are to be made...

Choose the CORRECT
statement from the following:
Select one:
a. If a bond’s yield to maturity exceeds its coupon rate, the
bond’s current yield must be less than its coupon rate.
b. All else equal, an increase in interest rates will have a
greater effect on higher-coupon bonds than it will have on
lower-coupon bonds.
c. If two bonds have the same maturity, the same yield to
maturity, and the same level of risk, the bonds should sell for the...

Which of the following would be a primary advantage of a U.S.
Treasury bond relative to a bond issued by a small healthcare
company?
A.
The Treasury bond would almost certainly have a higher coupon
rate than the corporate bond.
B.
The corporate bond would trade at a premium to par while the
Treasury bond would trade at a discount to par.
C.
The Treasury bond would have higher liquidity than the corporate
bond.

eBook Problem Walk-Through
An investor has two bonds in his portfolio that have a face
value of $1,000 and pay a 12% annual coupon. Bond L matures in 12
years, while Bond S matures in 1 year.
What will the value of the Bond L be if the going interest rate
is 7%, 9%, and 13%? Assume that only one more interest payment is
to be made on Bond S at its maturity and that 12 more payments are
to...

An investor has two bonds in his portfolio that have a face
value of $1,000 and pay an 11% annual coupon. Bond L matures in 20
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What will the value of the Bond L be if the going interest rate
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to be made on Bond S at its maturity and that 20 more payments are
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What will the value of the Bond L be if the going interest rate
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be made on Bond S at its maturity and that 16 more payments are to
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