Question

    One of the bonds used to raise debt is zero coupon

    bonds. Which of the following statement is incorrect regarding Zero Coupon Bond?
    A Zero Coupon Bond do not pay any interest Correct Answer Incorrect Answer
    B Yield to maturity is Nil as it pays no interest Correct Answer Incorrect Answer
    C Investors buy Zero Coupon Bond at discount to face value Correct Answer Incorrect Answer
    D Investors receive money on par at maturity Correct Answer Incorrect Answer
    E All of the above are correct Correct Answer Incorrect Answer

    Solution

    A zero-coupon bond is a debt security that does not pay interest but instead is issued at a deep discount and redeemed at par. The difference between the issue price and the redemption value is the return/profit earned. As such, zero coupon bonds do have a yield to maturity.

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