Which of the Following Statements Is Correct

question 17

Multiple Choice

Which of the following statements is correct?

• A)A zero coupon bond provides no interest payments during the life of the bond, but it provides its owner with a capital gain when the bond matures.In the United States, these bonds appeal to high-income investors because the tax on capital gains income is deferred until the bond matures or is sold.
• B)The "penalty" for having a low bond rating is more severe when the Security Market Line (SML) is relatively steep than when it is not so steep.
• C)A bond that is callable has a chance of being retired earlier than its stated term to maturity.Therefore, if the yield curve is upward sloping, an outstanding callable bond should have a lower yield to maturity than an otherwise identical noncallable bond.
• D)A zero coupon bond is a bond that pays no interest and is offered (and subsequently sells) at par, therefore providing compensation to investors in the form of capital appreciation.
• E)None of the above is a correct statement.

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