Question

4) For each of the following pairs of Treasury securities (each with $1000 par value), identify which will have the higher price:

a. A four-year zero-coupon bond or a six-year zero coupon bond?

b. A four-year zero-coupon bond or a four-year 5% coupon bond?

c. A two-year 4% coupon bond or a two-year 5% coupon bond?

Answer 1

  

_______________________________

_______________________________

Answer a)

A four-year zero-coupon bond or a six-year zero coupon bond?

A 4 year ZCB will have higher price as it is discounted less

Answer b)

A four-year zero-coupon bond or a four-year 5% coupon bond?

A Bond with 5% coupon will have higher value as it provides the Coupon every year as well.

Answer c)

A two-year 4% coupon bond or a two-year 5% coupon bond?

A Bond with higher coupon rate will have higher value, if the maturity is same. Therefore the Bond with 5% coupon will have higher value.

NOTE: Do upvote the answer, if this was helpful.

NOTE: Please don't downvote directly. In case of query, I will solve it in comment section in no time.