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Bonds

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1. Why would a company issue bonds that require interest payments if bonds that do not require interest payments are being sold in an open market?

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Solution Summary

The solution explains why companies issue interest bearing and non-interest bearing bonds

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Bonds that do not require interest payments are called zero coupon bonds. These bonds also have an implicit interest built into them, though no interest is paid. Such bonds are issued at a discount to the face value and are redeemed at face value. The difference between the issue price and the face value constitutes the interest amount. Therefore there are no bonds that do not require interest. Some pay interest ( have a coupon ) and some do not pay, but both have ...

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