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You are on your lunch break at work and you hear colleagues talking about bonds. Lexi said, “When a company issues a bond, the buyer of that bond becomes, in effect, a part owner of the company.” Lauren says, “Bonds are really only bought by banks. So, in a weird way, the source and the use of the funds is the same.” Madeleine says, “When an investor buys a bond, the investor is giving money to the issuer of that bond – with the assurance that it will be repaid at a future date.” You are asked to comment on what you hear – who is correct? Is it Lexi, Lauren, Madeleine or some combination of them? Indicate who is correct and why and who is incorrect and why. (5 marks) The discussion continues. “I am interested in buying a zero coupon bonds. You can only make money on these if you know what you are doing. These are bought at face value and sold at a premium at a later date,” said Lexi. Lauren said, “what are you talking about? Zero coupons pay amazing regular interest payments – that’s why you buy them.” Madeleine put in her view “look, you buy bonds because they always increase in value over time.” Wally overheard and said, “zero coupons are bought because they tend to be purchased at a premium over their face value- and that is compelling.” Who is right-and why? Assess each statement and add your own if needed.