Why is the yield to maturity of a zero-coupon,risk-free bond that matures at the end of a given period the risk-free interest rate for that period?
A) Since such a bond provides a risk-free return over that period,the Law of One Price guarantees the risk-free interest rate be equal to this yield.
B) Since a bond's price will converge on its face value as the bond approaches the maturity date,the Law of One Price dictates that the risk-free interest rate will reflect this convergence.
C) Since interest rates will rise and fall in response to the movement in bond prices.
D) Since there is,by definition,no risk in investing in such bonds,the return from such bonds is the best that can be expected from any investment over the period.
E) Since it the easiest bond to value and this gives investors an easy benchmark against which they can evaluate other investments.
Correct Answer:
Verified
Q23: Under what situation can a zero-coupon bond
Q25: Investors may be willing to invest in
Q28: A risk-free,zero-coupon bond has 15 years to
Q29: Q31: Which of the following risk-free,zero-coupon bonds could Q32: A risk-free,zero-coupon bond with a face value Q33: Consider a zero-coupon bond with $1,000 face
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents