Question

An investor wishes to buy a new issue of U.S. Government agency bonds. You recommend that the customer purchase Federal Farm Credit System bonds with a 10 year maturity. An investor who purchases the new issue can expect to pay:

Answer 1

Answer:

The question is missing the below options:

A. par value

B. par value less a discount

C. par value plus a mark-up

D. par value plus a commission

The correct option is A, par value

Explanation:

Securities such as the Federal Farm Credit System bonds are usually sold to the public through a chain of issuing houses consisting of bank and brokers who traditionally sell to the public at par value.

The consequence of selling at par is that these issuing houses charge a percentage of par value as their commission before remitting the balance to the beneficiary of bonds issuance.

In other words, the agency issuing the bonds must consider the commission payable before deciding on the bonds to be issued.