Question

An investor wishes to buy a new issue of U.S. Government agency bonds. You recommend that the customer purchase Federal Home Loan Bank bonds with a 20 year maturity. An investor who purchases the new issue of Federal Home Loan Bank bonds can expect to pay:
A par

B par plus a mark-up

C discount

D discount plus a mark-up

Answer 1

Answer:

A par

Explanation:

In order to close the housing gap, the Federal Home Loan Bank (FHLM) takes all necessary steps to ensure funds are available for home mortgages and construction of residential houses issues Federal Home Loan Bonds (FHLB) also called called agency bonds, The bonds are sold by financial institutions, the income from FHLB are only subjected to federal tax but  exempted from state and local income-tax.

New bonds are said to be issued in the primary market in which case it is issued at par. But when traded in the secondary market, that is, when someone wants to resell, it may be sold at a lower or higher price, this is because of fluctuation in interest rate.