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What is the difference between a discount security and an interest-bearing security? Which type is usually...

  1. What is the difference between a discount security and an interest-bearing security? Which type is usually traded in money markets and which type would a 10-year corporate bond normally be?

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Answer #1

Discount Security is a security which is ISSUED AT DISCOUNT and FACE VALUE IS PAID AT MATURITY. There are NO INTEREST OR COUPON PAYMENTS during its life.

Interest-Bearing Security DOES PAY PERIODIC INTERESTS OR COUPONS during the life. It might be issued at premium or discount depending on prevailing interest rate and its coupon rate.

Most of the securities traded in Money Market are Discount Security

And, Most of the Corporate Bonds are Interest Bearing Security

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