Final answer:
The statement is false; the issuer pays the full $1,000 par value at maturity, not the discounted purchase price of $980.
Step-by-step explanation:
The quote of a bond at 98, as in the scenario presented, indicates that the bond is being sold at 98% of its par value. In monetary terms, this means the buyer would pay $980 for a bond with a face value of $1,000. It's crucial to recognize that this discounted purchase price does not impact the par value the issuer is obligated to pay at maturity.
Contrary to the statement that the issuer pays the bondholder $980 at maturity, the issuer is, in fact, obligated to repay the full face value of the bond, which is $1,000. The discount in the bond's price at the time of purchase is a market-driven reflection of factors such as prevailing interest rates, market conditions, and perceived risk associated with the bond issuer.
Bonds are often quoted above or below their face value based on market dynamics. In the given example, the bond is quoted below par due to factors like rising market interest rates, which can decrease the bond's market value. However, regardless of the purchase price, at maturity, assuming no default, the issuer remains obligated to pay the bondholder the full face value.
Understanding bond quotes and pricing dynamics is crucial for investors navigating the fixed-income market. It emphasizes that the quoted price represents the market's valuation at a specific point, but the issuer's commitment to pay the face value at maturity remains unchanged.