If you are holding a premium bond, you must expect a each year until maturity. If you are holding a discount bond, you must expect a each year until maturity. (In each case assume that the yield to maturity remains stable over time.)

A) capital gain; capital loss
B) capital gain; capital gain
C) capital loss; capital gain
D) capital loss; capital loss

Question

If you are holding a premium bond, you must expect a ________ each year until maturity. If you are holding a discount bond, you must expect a ________ each year until maturity. (In each case assume that the yield to maturity remains stable over time.)

A) capital gain; capital loss
B) capital gain; capital gain
C) capital loss; capital gain
D) capital loss; capital loss

Devesh Sahrawat · Accepted Answer

Final Answer : C, Explanation :  Premium bonds are purchased above their face value, so as they approach maturity, their value decreases towards the face value, resulting in a capital loss. Discount bonds are purchased below their face value, and as they approach maturity, their value increases towards the face value, resulting in a capital gain.

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