Assume That the Risk-Free Zero Rates Are Increasing with Maturity

question 19

Multiple Choice

Assume that the risk-free zero rates are increasing with maturity (That is, the 6-months zero rate is lower than the one-year zero rate, which is lower than the two-year zero rate, etc) . It must be that:

• A) The yield-to-maturity curve for coupon bonds lies below the yield-to-maturity curve for zeros
• B) The yield-to-maturity curve for coupon bonds equals the yield-to-maturity curve for zeros
• C) The yield-to-maturity curve for coupon bonds lies above the yield-to-maturity curve for zeros
• D) The yield-to-maturity curve for coupon bonds lies above the yield-to-maturity curve for zeros for maturities less than one year, but lies below the yield-to-maturity curve for zeros for maturities greater than one year.

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Definitions:

Chemical Weapons

Weapons that utilize toxic chemicals to inflict harm or death upon enemy forces or civilians, banned under various international laws and treaties due to their brutal nature.

Biological Weapons

Weapons that use bacteria, viruses, or other pathogens as a means of warfare, intended to cause disease or death in humans, animals, or plants.

Nuclear Weapons

Explosive devices that derive their destructive force from nuclear reactions, either fission or a combination of fission and fusion, capable of causing massive destruction.

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