Aaron 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 have a higher price because of its greater capital gain potential.
C) The zero coupon bond must sell for a lower price than the bond with an 8% coupon rate.
D) All rational investors will prefer the 8% bond because it pays more interest.
Correct Answer:
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