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For each of the following pairs of Treasury securities (each with
$ 1 comma 000$1,000
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 %4%
coupon bond?c. A two-year
5 %5%
coupon bond or a two-year
6 %6%
coupon bond?
a. A three-year zero-coupon bond or a five-year zero-coupon bond?
Which will have the higher price?(Select the best choice below.)
A.
A five-year zero-coupon bond, because the present value is received sooner and the future value is higher.
B.
A three-year zero-coupon bond, because the present value is received sooner and the future value is higher.
C.
A five-year zero-coupon bond, because the future value is received later and the present value is higher.
D.
A three-year zero-coupon bond, because the future value is received sooner and the present value is higher.
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