1US Treasury securities with maturity of 2 years or more mak

1-U.S. Treasury securities with maturity of 2 years or more make two payments per year and one large payment at maturity. This is an example of a(n)

perpetuity.

equity security.

fixed payment security.

discount bond.

coupon bond.

2-Sally purchases a security that matures in two years and makes no payments until maturity.   This is an example of a(n)

fixed payment security.

perpetuity.

coupon bond.

discount bond.

equity security.

3-Austin purchases a Subaru WRX and finances it at the dealer. He agrees to pay $450 every month for 5 years to pay for the car.   This is an example of a(n)

perpetuity.

equity security.

discount bond.

fixed payment security.

coupon bond.

Solution

(1) Equity Security

An equity security pays a fixed payments during the asset-holding period and another pre-determined fixed amount at the end of asset-holding period.

(2) Discount Bond

A discount bond is sold at a price that is lower than its face value, pays no interest or coupon during asset-holding period and the face value is paid at redemption.

(3) Fixed Payment security

With this type of securities, a fixed payment is made throughout the term of asset-holding (or repayment period).