Easy:
Zero coupon bond concepts Answer: a Diff: E
7A-134. Which of the following statements is most correct?
a. If interest rates increase, a 10-year zero coupon bond will drop in price by a greater percentage than will a 10-year 8 percent coupon bond.
b. One nice thing about zero coupon bonds is that individual investors do not have to pay any taxes on a zero coupon bond until it matures, even if they are not holding the bonds as part of a tax-deferred account.
c. If a bond with a sinking fund provision has a yield to maturity greater than its coupon rate, the issuing company would prefer to comply with the sinking fund by calling the bonds in at par rather than buying the bonds back in the open market.
d. Statements a and c are correct.
e. All of the statements above are correct.
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