what are deep discount bonds????

Answer 1

If a bond for 20 years at $1000 is issued at 3% when 3% interest is the going rate, the bond can be resold at par ($1000). If the going rate of interest rises to 6%, the fair market value of the bond falls enough so that the buyer would realize, the $30 per year minus the amortization of the discount over the remaining years until maturity. If a buyer thinks that interest rates are going to fall substantially, the buyer would benefit from the rise in the bond value. If the interest rate rises more, the bond value would drop further.