This is not always true as each case is 33 33

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Unformatted text preview: nd and a regular bond is that a zero­coupon bond does not pay coupons, or interest payments, to the bondholder while a typical bond does make these interest payments. The holder of a zero­coupon bond only receives the face value of the bond at maturity. The holder of a coupon paying bond receives the face value of the bond at maturity but is also paid coupons over the life of the bond. 31 31 Characteristics of Bond Zero­coupon bondholders gain on the difference between what they pay for the bond and the amount they will receive at maturity. Zero­coupon bonds are purchased at a large discount, known as deep discount, to the face value of the bond. A coupon­paying bond will initially trade near the price of its face value. In other words, a zero­ coupon bond gains from the difference between the purchase price and the face value, while the coupon bond gains from the regular distribution of interest. 32 32 Characteristics of Bond For example, imagine that you have the choices For between a one-year zero-coupon bon...
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