Question

when you would prefer to buy a coupon bond over a discount bond.

when you would prefer to buy a coupon bond over a discount bond.

Homework Answers

Answer #1

It shall be noted that a coupon bond pays periodic coupon per period up to the time of its maturity. At maturity, the coupon bonds also pays the face value of the bond.

Whereas, the discount bond pays an amount equal to the face value of the bond only at the time of its maturity.  

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------

One would prefer to buy a coupon bond over the discount bond when one is retired and want to maintain a steady flow of income. In this situation, there is little use of making investment in zero coupon bonds.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Would you prefer a coupon bond or a zero coupon bond? Assume that both of them...
Would you prefer a coupon bond or a zero coupon bond? Assume that both of them would yield the same return (regardless of the coupon bond's payments). Explain your answer
8. You buy a zero-coupon bond which will pay you $1000 in 30 years. Annual discount...
8. You buy a zero-coupon bond which will pay you $1000 in 30 years. Annual discount rate is i= 6% compounded once per year. A few minutes later the discount rate rises to i= 7%. What is the percent change in the value of the bond? Hint: if an answer is negative, do not drop the minus sign. 9. You buy a zero-coupon bond which will pay you $1000 in 30 years. Annual discount rate is i= 14% compounded once...
1. Assume you buy a bond with the following features Bond maturity = 4 Coupon Rate...
1. Assume you buy a bond with the following features Bond maturity = 4 Coupon Rate = 5% Face Value = $1,000 Annual Coupons When you buy the bond the market interest rate = 4.50% Immediately after you buy the bond the interest rate changes to 6.71% What is the "reinvestment" effect in year 3 ? 2.       Bond E has the following features:          Face value = $1,000,        Coupon Rate = 10%,         Maturity = 5 years, Yearly coupons         ...
Assume you buy a bond with the following features Bond maturity = 4 Coupon Rate =...
Assume you buy a bond with the following features Bond maturity = 4 Coupon Rate = 4% Face Value = $1,000 Annual Coupons When you buy the bond the market interest rate = 4.22% Immediately after you buy the bond the interest rate changes to 7.98% What is the "reinvestment" effect in year 3 ?
Why would a bond with a yield higher than the coupon rate sell at a discount?...
Why would a bond with a yield higher than the coupon rate sell at a discount? Why would a bond with a yield lower than the coupon rate sell at a premium?
You buy an 8 percent coupon, 10-year maturity bond when its yield to maturity is 9...
You buy an 8 percent coupon, 10-year maturity bond when its yield to maturity is 9 percent. One year later, the yield to maturity is 10 percent. Assume the face value of the bond is $1,000. (a) What is the price of the bond today? (b) What is the price of the bond one year later? (c) What is your rate of return over the one-year holding period?
You buy a bond with a par value of $1000 and a coupon rate of 8%...
You buy a bond with a par value of $1000 and a coupon rate of 8% with 18 coupons remaining. You hold the bond and receive 11 coupons. If the bond had a YTM of 8.2% when you bought it and 9.1% when you sold it, what was your annual holding period ROR?
You buy a TIPS at issue at par for $1,000. The bond has a 3.2% coupon....
You buy a TIPS at issue at par for $1,000. The bond has a 3.2% coupon. Inflation turns out to be 2.2%, 3.2%, and 4.2% over the next 3 years. The total annual coupon income you will receive in year 3 is _________.
Suppose you buy a 7 percent coupon, 20-year bond today when it is first issued. If...
Suppose you buy a 7 percent coupon, 20-year bond today when it is first issued. If interest rates suddenly rise to 15 percent, what happens to the value of your bond? Why? Illustrate your explanations with a graph.
You buy a 7 percent coupon, 10-year maturity bond, which was issued in 2015. The yield...
You buy a 7 percent coupon, 10-year maturity bond, which was issued in 2015. The yield to maturity is 6 percent. a) Is this a discount or a premium bond? Explain your answer! (4 points) b) What is the price of the bond today (in 2017)? (4 points) c) Tell (without any calculation) the price at which the bond would trade if today the yield to maturity would be exactly 7%. Support your answer.