Future Business Leaders of America (FBLA) Securities and Investments Practice Test

Which type of security is most often issued at a discount from face value and involves repaying principal only at maturity?

1. Tax anticipation notes

2. Bankers acceptances

3. Mortgages

4. Commercial paper

The correct answer is: Bankers acceptances

The correct answer is that bankers' acceptances are most often issued at a discount from face value and involve repaying principal only at maturity. This type of security represents a short-term obligation generated by a commercial transaction, where a bank guarantees payment. When issued, bankers' acceptances are sold at a discount to face value, meaning that the investor pays less than the full value of the security and receives the face value at maturity. This structure makes them an attractive investment for those interested in holding a low-risk asset until the maturity date, at which point they receive the principal amount. Tax anticipation notes, mortgages, and commercial paper do not solely operate in this manner. Tax anticipation notes are issued in anticipation of future tax revenues, and while they may also involve repayment at maturity, they do not typically have the same structures as bankers' acceptances. Mortgages involve periodic payments that include both interest and principal over time until the loan is fully repaid. Commercial paper, while it is a short-term unsecured debt instrument issued at a discount, usually has a maturity of less than a year and is not specifically linked to repayment of principal only at maturity, as it may also involve repayment of any accrued interest depending on the terms. Thus, bankers' acceptances