Question

    Which of the following is NOT a characteristic of a

    zero-coupon bond?
    A Pays interest periodically Correct Answer Incorrect Answer
    B Issued at a discount to face value Correct Answer Incorrect Answer
    C Redeemed at face value Correct Answer Incorrect Answer
    D Effective interest earned is the difference between face value and issue price Correct Answer Incorrect Answer
    E Known as deep discount bonds Correct Answer Incorrect Answer

    Solution

    A zero-coupon bond does not pay any coupons during the term of the bond. It is issued at a discount to the face value and redeemed at face value, with the effective interest earned being the difference between these two values.

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