Question

“Bonds that are classified as coupon bonds are also known as annuities. “ Do you agree or disagree with the statement? Explain your answer.

Answer 1

Answer: I disagree with the statement that says, "Bonds that are classified as coupon bonds are also known as annuities".

Bonds are not annuities, Annuity and bonds both are fixed income securities but still different.

Bonds- It is a fixed income debt security that is issued by corporate or local and state Government and municipal corporation to raise the funds. Interest is provided to the bondholder and principal is repaid after the maturity of the bond. Bonds can be issued at Par, at discount and at premium.

Annuities- Are the financial product that provide regular income or income at a different intervals for a specified period of time. It provides guaranteed income. In annuity, you invest money either lump sum or periodic payments.

Difference- Bond provides interest during the term of bond and principal is repaid after the term is over while in annuity, interest and principal both are paid in a certain amount regularly or at a certain intervals. Annuity payments are higher than bonds' coupons but there is no principal paid at the end.

Coupons are paid regularly but it cannot be considered as Annuity.