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20 January, 08:49

Which security should sell at a greater price? a. A 9-year Treasury bond with a 9.25% coupon rate or a 9-year T-bond with a 10.25% coupon. A 9-year T-bond with a 10.25% coupon A 9-year Treasury bond with a 9.25% coupon rate

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  1. 20 January, 10:28
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    Answer: A 9-year T-bond with a 10.25% coupon

    Explanation:

    Generally the higher the coupon rate, the higher the price of the bond. This is because the price of a bond is simply the present value of all the expected Cashflow from the bond. If the bond has a higher coupon rate that would mean that more cash will be paid by the bond thereby increasing it's price.

    In short, coupon rates and bond prices have a direct relationship.
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