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      Question

      What does a 'Zero-Coupon Bond'

      mean?ย 
      A A bond that pays zero interest but is issued at a deep discount to its face value. Correct Answer Incorrect Answer
      B A bond issued by the government with 0% risk. Correct Answer Incorrect Answer
      C A bond that has been defaulted upon. Correct Answer Incorrect Answer
      D A bond where the interest is paid only at the very beginning. Correct Answer Incorrect Answer
      E A bond that can be converted into equity for free. Correct Answer Incorrect Answer

      Solution

      These bonds do not make periodic interest (coupon) payments. The "interest" is the difference between the discounted purchase price and the face value paid at maturity.

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