?Which of the following statements is true of a zero coupon bond?
A. ?If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the borrower would exercise the call option and call in the bonds.
B. ?If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the bond's maturity value would be more than its par value.
C. ?If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the bond's maturity would increase from 10 years to 15 years.
D. ?If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the bond would sell at a premium over its $1,000 par value.
E. ?If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the bond's coupon rate would decrease from 10 percent to 5 percent.
Answer: D
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