To reply to your comment, that\'s all I have as information Charlie Corporation

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To reply to your comment, that's all I have as information

Charlie Corporation has two bonds outstanding Both bonds mature in 10 years, have a face value of $1,000, and have a yield to maturity of 8%. One bond is a zero coupon bond and the other bond has a coupon rate of 8%. Which of the following statements is true? 0 A. All rational investors will prefer the 8% bond because it pays more interest O B. The zero coupon bond must have a higher price because of is greater capital gain potential. ° C. Both bonds must sell for the same price if markets are in equilibrium O D. The zero coupon bond must sell for a lower price than the bond with an 8% coupon rate Sub Click to select your answer ..pdf invitation to identify.pdf /. to search

Explanation / Answer

Price of other bond = $1000 [as yield = coupon rate ,therefore it means bond is elling at par]

Price of zero coupon bond = face value *PVF8%,10 = 1000 * 1/(1+r)n = 1000/2.158924 = $463.19

Therefore option D is correct- The zero coupon bond must sell for a lower price than the bond with 8% coupon rate.

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