Question

If the bond prices are decreasing, then the bond type that provides the highest benefit to its holder is A) Plain vanilla B) Pure discount bond C) Callable D) Putable E) Multiple put

Answer 1

The correct option is Pure discount bond

Pure Discount bond refers to the bonds which are issued at the discount and redeemable at the par value, these types of bonds doesn't pay regular interest payment but the difference between the face value and the discounted price is the return of the investor.

If the bond price is increasing, the pure discount bond will be available to investor at much lower price then the return of the investor would significantly increase because the difference between the face value and the discounted price will widen.