A ________ is bought at a price below its face value, and the ________ value is repaid atthe maturity date.A) coupon bond; discountB) discount bond; discountC) coupon bond; faceD) discount bond; face
Question
A ________ is bought at a price below its face value, and the ________ value is repaid atthe maturity date.A) coupon bond; discountB) discount bond; discountC) coupon bond; faceD) discount bond; face
Solution
The correct answer is D) discount bond; face.
Here's why:
A discount bond is a bond that is purchased for less than its face value. The face value is the amount that will be paid back to the bondholder at maturity. So, when you buy a discount bond, you're buying it for less than the amount you'll eventually receive, hence making a profit. This is why option D) "discount bond; face" is the correct answer.
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