Two investors are each issued one bond with the same face value, maturity date, and yield. After both bonds have reached maturity, it is discovered that one of the bondholders received a greater total return on her investment. If all expected payments were received, which of the following could explain the difference in return?(1 point)

Question

Responses

One of the bonds earned greater interest payments than the other.
One of the bonds earned greater interest payments than the other.

One of the bonds was sold at face value while the other was sold below face value.
One of the bonds was sold at face value while the other was sold below face value.

One of the bonds was a municipal bond while the other was a savings bond.
One of the bonds was a municipal bond while the other was a savings bond.

One of the bonds was a corporate bond while the other was a savings bond.

Answer 1

The correct explanation for the difference in total return between the two bondholders, given that all expected payments were received, would be:

One of the bonds was sold at face value while the other was sold below face value.

This scenario could lead to a difference in overall return because if one bond was sold at a discount (below face value), the total return would include both the interest payments received during the life of the bond and the capital gain realized when the bond is redeemed at its higher face value upon maturity. Conversely, if the other bond was sold at face value, its total return would reflect only the interest payments without any capital gain.

The other options, while potentially affecting returns, do not align with the scenario where all expected payments were received and the bonds had the same yield, face value, and maturity.