For each of the following pairs of Treasury securities (each with $ 1 comma 000 par value), identify which will have the higher price: a. A three-year zero-coupon bond or a five-year zero-coupon bond? b. A three-year zero-coupon bond or a three-year 4 % coupon bond? c. A two-year 5 % coupon bond or a two-year 6 % coupon bond?

Question

Mathematics

Jayleen Sullivan

2 August, 01:44

For each of the following pairs of Treasury securities (each with $ 1 comma 000 par value), identify which will have the higher price: a. A three-year zero-coupon bond or a five-year zero-coupon bond? b. A three-year zero-coupon bond or a three-year 4 % coupon bond? c. A two-year 5 % coupon bond or a two-year 6 % coupon bond?

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Answers (1)

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Malia Morgan · Answer 1

Step-by-step explanation:

A. The three-year zero coupon bond, because the future value is receiver sooner, thus the present value is higher.

B. The three year 4% coupon bond because it pays interest payments, whereas the zero coupon bond is pure discount bond.

C. The 6% coupon bond because the coupon (interest) payments are higher.