Question

A discount bond

A) pays the bondholder a fixed amount every period and the face value at maturity.
B) pays all interest and the face value at maturity.
C) pays the face value at maturity plus any capital gain.
D) pays the bondholder the face value at maturity.

Answer 1

The correct answer is letter "D": pays the bondholder the face value at maturity.

Step-by-step explanation:

Bonds that are issued for an amount lower than their face value are called discount bonds. They are an indicator that the company may not be able to take care of its liabilities. Though, they can also be bonds trading at a lower price than their face value in the secondary market.

At the maturity date, discount bonds pay the holder the face value allowing the investor to profit.

Answer 2

The answer is D

Step-by-step explanation:

A discount bond is a bond trading at less than a bond's par or facr value.

In this, interest will be paid before the maturity date and only the principal (face value) is paid at maturity. The interest rate is below that market interest rate.

While a premium bond is trading above the market interest rate