Which of the Following Statements Is True of a Zero

question 25

Multiple Choice

Which of the following statements is true of a zero coupon bond?

• A) If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the borrower would exercise the call option and call in the bonds.
• B) If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the bond's maturity value would be more than its par value.
• C) If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the bond's maturity would increase from 10 years to 15 years.
• D) If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the bond would sell at a premium over its $1,000 par value.
• E) If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the bond's coupon rate would decrease from 10 percent to 5 percent.

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Definitions:

Indirect Material

Materials used in the support of the production process but not directly a part of the finished product.

Period Cost

Costs that are expensed in the period in which they are incurred, not directly tied to the production of goods or services.

Goals Met

A term indicating the achievement of predefined objectives or targets.

Planning

The process of outlining business goals, strategies, and actions to achieve desired outcomes.