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problem: Aaron Corporation has 2 bonds outstanding. Both bonds mature in ten years, have a face value of $1,000, & have a yield to maturity of 8 percent. One bond is a zero coupon bond and the other bond has a coupon rate of 8 percent. Determine the true statement.

[A] Both bonds must sell for the same price if markets are in equilibrium.

[B] The zero coupon bond must have a higher price because of its greater capital gain potential.

[C] All rational investors will prefer the 8 percent bond because it pays more interest.

[D] The zero coupon bond must sell for a lower price than the bond with an 8 percent coupon rate.

Basic Finance, Finance

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  • Reference No.:- M918802

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