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4. All of the statements above are correct.
5. None of the statements above is correct.
25. A 10-year bond pays an annual coupon. The bond has a yield to
maturity of 8 percent. The bond currently trades at a premium--its price
is above the par value of $1,000. Which of the following statements is
CORRECT?
1. If the yield to maturity remains at 8 percent, then the bond’s price will
decline over the next year.
2. The bond’s current yield is less than 8 percent.
3. If the yield to maturity remains at 8 percent, then the bond’s price will
remain the same over the next year.
4. The bond’s coupon rate is less than 8 percent.
5. If the yield to maturity increases, then the bond’s price will increase.
26. Which of the following statements is CORRECT?
One advantage of a zero coupon Treasury bond is that no one who owns
the bond has to pay any taxes on it until it matures or is sold.
Long-term bonds have less interest rate price risk but more reinvestment
rate risk than short-term bonds.
If interest rates increase, all bond prices will increase, but the increase
will be greater for bonds that have less interest rate risk.
Relative to a coupon-bearing bond with the same maturity, a zero
coupon bond has more interest rate price risk but less reinvestment rate
risk.