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Why is the yield to maturity (YTM) of a discount bond greater than the bond's current yield?
The yield to maturity (YTM) of a discount bond is greater than the bond's current yield because the YTM takes into account the total return an investor would receive if they hold the bond until maturity, including the capital gain from buying the bond at a discount. The current yield only considers the annual interest payments relative to the bond's current price, without factoring in the potential gain from the bond reaching its full face value at maturity.
Distinguish between deep discount bond and zero coupon bond?
the main difference between deep discount bond and zero coupon bond is that in case of zero coupon bond no int is payable periodically while in case of deep discount bond int is payable periodically at very lower rate say 2% per annum
What does it mean when bonds are issued at a discount?
When a bond is issued at a discount, it is issued for a price less than par (face value). For example, if you were to purchase a bond with a face value of one thousand dollars for nine-hundred and eighty dollars, you bought the bonds at a discount because you purchased it for less than the bond will pay out at maturity. To calculate the 98, you would divide the purchase price by the par value.
Why would investors buy a poorly rated bond?
They would buy it only if it paid a high interest rate, or if it were being sold at a steep discount
How do investors make money on zero-coupon bonds?
The bond sells at a discount from its face value--sometimes a BIG discount. At the date of maturity, the bond will give you the full face value.
Distinguish between deep discount bond and zero coupon bond?
the main difference between deep discount bond and zero coupon bond is that in case of zero coupon bond no int is payable periodically while in case of deep discount bond int is payable periodically at very lower rate say 2% per annum
Why is the yield to maturity (YTM) of a discount bond greater than the bond's current yield?
The yield to maturity (YTM) of a discount bond is greater than the bond's current yield because the YTM takes into account the total return an investor would receive if they hold the bond until maturity, including the capital gain from buying the bond at a discount. The current yield only considers the annual interest payments relative to the bond's current price, without factoring in the potential gain from the bond reaching its full face value at maturity.
What are Bond Premiums and Discounts?
Bond premiums refer to bonds that are issued at a price above its face value. for example, if the market rate for a bond is 8% and the stated rate on the bond is 9% then it would be a premium bond. Bond discounts refer to bonds that are issued at a price below its face value. For example, if the market rate for a bond is 9% and the stated rate on the bond is 10%, then it would be a discount bond.
What does it mean when bonds are issued at a discount?
When a bond is issued at a discount, it is issued for a price less than par (face value). For example, if you were to purchase a bond with a face value of one thousand dollars for nine-hundred and eighty dollars, you bought the bonds at a discount because you purchased it for less than the bond will pay out at maturity. To calculate the 98, you would divide the purchase price by the par value.
Why would investors buy a poorly rated bond?
They would buy it only if it paid a high interest rate, or if it were being sold at a steep discount
What is a discount on bonds payable account in accounting?
All bonds have a stated or "par" value, which is the value that the bond will hold after the bond term is completed at maturity (par value is usually $1000 per bond). When a bond is issued at a discount, it means that a company issued the bond for less than the par value (i.e less than $1000). The original discount is calculated as the difference between the par value and the bond sale price, and it is amortized over the life of the bond.
How do investors make money on zero coupon bonds?
The bond sells at a discount from its face value--sometimes a BIG discount. At the date of maturity, the bond will give you the full face value.
How do investors make money on zero-coupon bonds?
The bond sells at a discount from its face value--sometimes a BIG discount. At the date of maturity, the bond will give you the full face value.
What is the highest to lowest bond energy of Br2 O2 and P2?
The bond energy of diatomic molecules can be compared as follows: O2 has the highest bond energy due to its strong double bond, followed by Br2 with a weaker single bond, and P2 has the lowest bond energy because it has a relatively weak bond. Therefore, the order from highest to lowest bond energy is O2 > Br2 > P2.
Where does the interest on a 4 year zero coupon go?
It goes to the investor who buys the bond. A zero coupon bond is a bond in which, the investor need not pay any premium (coupon) above the face value of the bond while purchasing it. Let us say a company issues a $10,000 bond at a discount of 10% with zero coupon, it is enough if the investor pays $9000 to buy the bond. At the time of maturity he would get back $10,000. This 10% discount can be compared to the interest earned on the investment for the investor.
What is it called when a bond is selling for less than its face value?
A bond selling for less than its face value is classified as being sold at a discount. A bond can sell at a discount if interest rates increase or if the repayment ability of the bond issuer becomes questionable due to a reduction in the credit rating of the issuer.
Which is the best infrastrusture bond?
The one with the highest return where the bond will not fail (default).
