Arthur buys a zero coupon bond with a face value of $5000 for $4000. The bond has five years until it matures. How much would Arthur earn if he holds this bond to maturity?

Answer: $1,000

Explanation:

In bonds, the face value is the value of bond when it is held to maturity. Since the face of the bond is $5,000, the value of Arthur's bond when he holds it until maturity is $5,000.

To get Arthur's earnings by holding his bond until maturity, we subtract the face value to the amount he paid for the bond. Since the face value is $5,000 and he paid $4,000 for that bond, he earned $1,000 for the bond because $5,000 - $4,000 = $1,000.