Question

Premium (> par value) vs. discount (< par value):

A) Callable vs. Non-callable Bonds
B) Convertible vs. Non-convertible Bonds
C) Junk Bonds vs. Investment-Grade Bonds
D) Zero-Coupon vs. Coupon Bonds
E) Treasury Bonds vs. Municipal Bonds

Answer 1

Bonds can be classified based on various characteristics, such as whether they are callable or non-callable, convertible or non-convertible, junk or investment-grade, zero-coupon or coupon, and treasury or municipal bonds.

Step-by-step explanation:

A bond is a debt security issued by a company or government entity to raise funds for various projects. Bonds can be classified based on different characteristics:

1. Callable vs. Non-callable Bonds: Callable bonds can be redeemed by the issuer before their maturity date, while non-callable bonds cannot.
2. Convertible vs. Non-convertible Bonds: Convertible bonds can be converted into a predetermined number of shares of the issuer's common stock, while non-convertible bonds cannot.
3. Junk Bonds vs. Investment-Grade Bonds: Junk bonds have a higher risk of default compared to investment-grade bonds, which are considered safer.
4. Zero-Coupon vs. Coupon Bonds: Zero-coupon bonds do not pay periodic interest but are sold at a discount to their face value, while coupon bonds pay periodic interest and are sold at a premium or discount to their face value.
5. Treasury Bonds vs. Municipal Bonds: Treasury bonds are issued by the federal government, while municipal bonds are issued by state and local governments.