A zero coupon bond is initially sold at a deep discount, meaning that it is purchased for less than its face value. It does not pay regular interest like a coupon bond, but rather the investor earns a return through the difference between the purchase price and the face value at maturity.

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A Zero Coupon Bond

Question 214

Multiple Choice

A zero coupon bond:

A) Is sold at a large premium.
B) Has a price equal to the future value of the face amount given a speciﬁed rate of return.
C) Can only be issued by the Canadian Government.
D) Has less interest rate risk than a comparable coupon bond.
E) Is initially sold at a deep discount.

Correct Answer: