A coupon bond that has no maturity date and no repayment of principal is called a
A. Treasury note. B. Treasury bill. C. cabinet. D. consol.
The correct answer and explanation is:
The correct answer is D. Consol.
A consol is a type of bond that does not have a maturity date and does not require the repayment of principal. It is a form of perpetual bond, which means that the issuer is obligated to pay interest to bondholders indefinitely but is not required to repay the principal amount. Consol bonds were initially issued by the British government in the 18th century, and they were used as a way for governments to finance debt without the need to redeem the bonds at a specific future date.
The main feature of consols is that they have no fixed maturity, and they provide a steady stream of income to investors in the form of regular interest payments, typically in the form of annual or semiannual coupon payments. The principal amount remains outstanding indefinitely, and the bondholders are only paid the interest on the bond until the government decides to redeem the bond, which is rare for consols.
In contrast, Treasury notes (A) and Treasury bills (B) are both U.S. government securities that have defined maturity dates. Treasury notes are medium-term securities with maturities ranging from 2 to 10 years, while Treasury bills are short-term instruments with maturities of one year or less. Cabinet (C) does not refer to any financial instrument and seems unrelated to the context of bonds.
Consols are considered a type of debt instrument that represents a long-term commitment to the bondholder, providing them with stable income for as long as they hold the bond, but without any expectation of principal repayment.