Charlie Corporation has two bonds outstanding. Both bonds mature in 10 years, have a face value
of $1,000, and have a yield to maturity of 8%. One bond is a zero coupon bond and the other bond
has a coupon rate of 8%.
Which of the following statements is true?
A) Both bonds must sell for the same price if markets are in equilibrium.
B) The zero coupon bond must sell for a lower price than the bond with an 8% coupon rate.
C) All rational investors will prefer the 8% bond because it pays more interest.
D) The zero coupon bond must have a higher price because of its greater capital gain potential.
B
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Indicate whether the statement is true or false
When negotiating the deal, the most important thing to remember is:
A) terms are more important than the price paid. B) to negotiate the lowest possible price. C) often the difference in available funds can be made up by collecting accounts payable. D) the owner of the business always asks 14-22% more than he/she is willing to take.