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:

Problem Solving

The process of finding solutions to difficult or complex issues, often involving analytical or creative thinking.

Intelligence

The ability to learn from experience, adapt to new situations, understand and handle abstract concepts, and use knowledge to manipulate one's environment.

Intelligence Test

A standardized assessment designed to measure cognitive abilities, including reasoning, problem-solving, and understanding, to derive an intelligence quotient (IQ).

Simon and Binet

Alfred Binet and Theodore Simon, French psychologists who developed the first intelligence test in the early 20th century to identify students needing special education.