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Pure discount bond

   Also found in: Acronyms 0.01 sec.
Pure discount bond
A bond that will make only one payment of principal and interest. Also called a zero-coupon bond or a single-payment bond.


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7) The daily rate of return on certificates of deposit is used to measure the daily rate of return on risk-free pure discount bonds of the same maturity as the futures contract.
According to this hypothesis, the price of a two-period default-free pure discount bond that pays one dollar at maturity, P(0,2), equals [Mathematical Expression Omitted] where P(0,1) is the price of a one-period pure discount bond, [Mathematical Expression Omitted] is the uncertain price of a one-period pure discount bond at the end of the first period, E[[center dot]] denotes expectation, [r.
We arbitrarily require T |is less than or equal to~ 1, because when the pure discount bond has a long time to maturity, it is not plausible to assert that the firm is financially distressed simply because the stock is out-of-the-money.
 
 
 
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