Question: Aaron Corporation has 2 bonds outstanding. Both bonds mature in ten years, have a face value of $1,000, & have a yield to maturity of 8 percent. One bond is a zero coupon bond and the other bond has a coupon rate of 8 percent. Determine the true statement.
[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] All rational investors will prefer the 8 percent bond because it pays more interest.
[D] The zero coupon bond must sell for a lower price than the bond with an 8 percent coupon rate.