Question

Based on the preceding information, which of the following statements are true? Check all that apply. Irwin’s bonds are a better investment than Smith’s bonds. The expected capital gains yield for Smith’s bonds is positive. Johnson’s bonds are a better investment than Irwin’s bonds. All of the bonds will have the same value when they reach maturity. Johnson’s bonds have exhibited a substantial trading volume in the past few years. Its bonds would be referred to as a .

Answer 1

Answer: 1. All of the bonds will have the same value when they reach maturity.

2. Seasoned Issue

Explanation:

1. From the graph given/attached, it is shown that all the bonds will converge in terms of price as they reach maturity. This is because they are different types of bonds and all bonds mature  as they converge on par. Johnson's bond is a discount bond and so will increase in price as it approaches par. Irwin's is a Par bond so will not change as it is already at Par. Smith's bond will reduce in price as it approaches Par as it is a premium bond.

2. If the bond were a new issue it would not have been trading in the past few years but rather just the current year. As it has been trading in previous years, it has been around for some time making Johnson's bonds a Seasoned Issue.