Asked by Olivia Yslas on Apr 27, 2024
Verified
Which of the following best describes zero coupon bonds?
A) bonds that are issued with no coupon payment and whose price is generally above the bond's par value
B) bonds that are issued with a coupon payment and whose price is generally above the bond's par value
C) bonds that are issued with no coupon payment and whose price fluctuates above and below its par value
D) bonds that are no longer issued because the Government of Canada requires that interest earned on bonds be paid out to investors
Zero Coupon Bonds
Bonds that do not pay interest during their lifetime and are sold at a discount to their face value.
Coupon Payment
A periodic interest payment made to bondholders during the life of the bond.
Par Value
A nominal or face value assigned to a share of stock by the company's charter, not necessarily reflecting its actual market value.
- Distinguish among the diverse types of bonds, considering their attributes and risk profiles.
Verified Answer
JF
jailson fernandesApr 30, 2024
Final Answer :
C
Explanation :
Zero coupon bonds are issued without a coupon payment, meaning they do not pay interest periodically. Instead, they are sold at a discount to their face value and mature at par value. The difference between the purchase price and the face value is the investor's return. The price of zero coupon bonds can fluctuate above and below their par value depending on interest rate movements and other factors.
Learning Objectives
- Distinguish among the diverse types of bonds, considering their attributes and risk profiles.