A discount bond resembles a simple loan in that
A)the interest on neither is taxable.
B)the borrower repays in a single payment.
C)both represent assets to the borrowers who issue them.
D)both have par values greater than their face values.

Question

Quizplus · Accepted Answer

A discount bond is issued at a discount to its par value and the borrower repays the bondholder the full face value at maturity. This is similar to a loan in which the borrower receives the loan amount and repays it in a single payment at the end of the loan term. Choice A is incorrect as interest on a discount bond is taxable. Choice C is also incorrect as a discount bond represents a liability to the borrower, not an asset. Choice D is incorrect as the par value of a discount bond is less than its face value.

A Discount Bond Resembles a Simple Loan in That