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.  

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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.

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