Question

In: Finance

If you are holding a discount bond, you must expect a _____ each year until maturity,...

If you are holding a discount bond, you must expect a _____ each year until maturity, If you are holding a premium bond, you must expect a _____ each year until maturity (Assuming no change in YTM over the life of the bond).

a. capital gain; capital loss

b. capital gain; capital gain

c. capital loss; capital gain

d. capital loss; capital loss

Solutions

Expert Solution

Ans a. capital gain; capital loss

If you are holding a discount bond, you must expect a capital gain each year until maturity, If you are holding a premium bond, you must expect a capital loss each year until maturity. A premium bond is a bond that is trading above its face value or we can say that premium bond costs more than the face amount of the bond. A discount bond is a bond that is trading below its face value.

jeff jeffy answered 2 years ago
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