help on MCQ
Hello, I was wondering if anyone could help me with these statements and MCQ, I'm very confused:
'' which of the following statements must be correct regarding bonds and their characteristics: 1) a 30 year 10% ytm u.s bond with a face value of $1000 paying $45 coupon semi-annually will sell at discount (I think it is correct since 1000/90= 9% coupon rate YTM 2) cumulative average default rate for AAA rated bonds is lower than that for C bonds ( this is also correct ) 3) a discount bond with semi-annual interest payments, all else equal would be priced higher than one with annual interest payment (this is wrong > discount bond annual payment price > discount bond semi-annual payment price 4) (here comes the confusion) holding all other characteristics the same the bond exposed to the lowest level of reinvestment risk is the one selling at a deep discount.
I know that deep discount bond, are somehow like zero coupon bonds since they don't pay any periodic payment, thus their investment risks are very low but I'm confused about the responses proposed:
a. 1 and 2 only b. 1 and 3 only c. 2 and 3 only d. 3 and 4 only e. none of the answers in a, b , c and d are correct
what would you choose? e since not any propose 1 2 and 4? or am I wrong somewhere else??
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