ЁЯУв Too many exams? DonтАЩt know which one suits you best? Book Your Free Expert ЁЯСЙ call Now!
  • google app store apple app store
    • тЬЦ

      Question

      Which is the most accurate statement regarding

      zero-coupon bonds?
      A Zero-coupon bonds are issued at a discount and redeemed at face value, with return earned entirely as capital appreciation. Correct Answer Incorrect Answer
      B Zero-coupon bonds pay regular interest coupons but generate no capital gain. Correct Answer Incorrect Answer
      C Zero-coupon bonds are unaffected by changes in market interest rates. Correct Answer Incorrect Answer
      D Zero-coupon bonds always have lower duration than coupon-paying bonds. Correct Answer Incorrect Answer
      E The sovereign government is prohibited from issuing zero-coupon bonds. Correct Answer Incorrect Answer

      Solution

      Zero-coupon bonds (also called deep discount bonds) do not pay periodic interest (coupons). Instead, they are issued at a price below their face value and redeemed at face value on maturity the difference being the investor's return. This return is in the form of capital appreciation, not periodic income. Option B is the opposite of reality. Option C is wrong zero-coupon bonds are highly sensitive to interest rate changes (they have the highest duration among bonds of the same maturity). Option D is wrong for the same reason. Option E is wrong RBI issues zero-coupon bonds (e.g., oil bonds).

      Practice Next
      More Financial Management Questions
      ask-question