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Why would an investor buy a no coupon bond redeemed at par

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asked Feb 20 in BUS 1003H - Introduction to Financial Risk by Shivambe

Why would an investor buy a no coupon bond redeemed at par? Where is the gain...hasn't the nominal value depreciated?

1 Answer

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answered Feb 20 by Mufaro (600 points)

Hi Shivambe

The gain on such a purchase would come from the price you pay. For example, a zero-coupon bond (ZCB) redeemed at par with a R100 nominal would sell for less than R100 (perhaps for R80).

The price for a ZCB is primarily determined by the time left until the bond matures, and the market interest rate. You will learn more about this fairly soon.

Hope that helps.

commented Feb 22 by Tintswalo (130 points)
that actually makes sense the point (gain)  is the difference between the nominal price and the market price. Thanx.
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