Should a bullet-payment bond or an amortizing bond worth more if they have the same contractual terms and credit risk?
You received a trick question! A bullet-payment bond should worth more when the bond is valued at a premium. This is because when the discount rate is lower than the coupon rate, receiving the principal payment at a later date could accrue more premium for the holder. In other words, there is less reinvestment risk for the holder of the bond as there is no need to reinvest the cash flows at a lower interest rate environment. The reverse is true for the amortizing bond – if the market interest rates are high, one would hope to receive part of the principal payment earlier to be able reinvest such cash flow at a higher interest rate.