Question

A zero coupon bond: Group of answer choices is sold at a large premium. has a market price that is computed using semiannual compounding of interest. can only be issued by the U.S. Treasury. has less interest rate risk than a comparable coupon bond. has a price equal to the future value of the face amount given a positive rate of return.

Answer 1

zero coupon bond equal to the future value of the face amount given a positive rate of return.

Bond with No Coupon Zero coupon bonds do not pay interest during the term of the bond. Rather, investors purchase zero coupon bonds at a significant discount to their face value, which is the amount the investor would get when the bond "matures" or comes due.

What is Zero coupon bonds?

A zero-coupon bond, also known as an accrual bond, is a debt security that does not pay interest but instead trades at a steep discount, yielding a profit when redeemed for its full-face value at maturity.

• A zero-coupon bond is a type of debt asset that does not pay interest.
• Zero-coupon bonds trade at steep discounts and pay full face value (par) at maturity.
• The difference between the purchase price and the par value of a zero-coupon bond represents the investor's return.

What is the difference between regular bonds and zero-coupon bonds?

Regular bonds, commonly known as coupon bonds, pay interest over the life of the bond and reimburse the principle when it matures. A zero-coupon bond, also known as an accrual bond, is a debt security that does not pay interest but instead trades at a steep discount, yielding a profit when redeemed for its full-face value at maturity.

Learn more about contrast between coupon rate and zero-coupon bonds at:

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