When a person buys a bond of the XYZ Corporation,he or she can expect to
A) pay the corporation a certain amount of money each quarter of the year.
B) receive the face value of the bond each year and the face value of the bond when the bond matures.
C) receive the coupon rate times the face value of the bond each year and the face value of the bond when the bond matures.
D) receive the face value of the bond each year in perpetuity.

Question

Quizplus · Accepted Answer

When a person buys a bond, they are essentially lending money to the corporation. In return, the corporation promises to pay a fixed amount of interest each year known as the coupon rate, which is calculated by multiplying the coupon rate by the face value of the bond. At the end of the bond term, the investor receives the face value of the bond back from the corporation. Therefore, option C is the correct choice since it reflects both the interest payments as well as the face value amount paid at maturity.

When a Person Buys a Bond of the XYZ Corporation,he