Discount bond is a bond which after its original issue makes only one payment upon its...

Discount bond is a bond which after its original issue makes only one payment upon its maturity. This single payment accounts for repayment of principal (i.e., amount borrowed) plus interest. Consider discount bond G and discount bond C. Both G and C have the same face value and the same maturity. Bond G is a treasury bond and bond C is a corporate bond. All else equal

a. The Present Value of G is less than the Present Value of C b. The Present Value of G is the same as the Present Value of C c. Cannot tell d. The Present Value of G is greater than the Present Value of C

Solutions

Expert Solution

Option D is correct

The Present Value of G is greater than the Present Value of C

Treasury Bond will have lower return rate than corporate bond due to risk in corporate bond, so with lower discount rate Treasury Bond(Bond G) will have higher price

jeff jeffy answered 1 year ago

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