FIN 534 RANK Imagine Your Future /fin534rank.com FIN 534 RANK Imagine Your Future /fin534rank.com - Page 83

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.