An investor would consider investing in a zero coupon bond because

Question

Quizplus · Accepted Answer

A zero coupon bond allows the investor to lock in a set multiplier of their investment, as these bonds are sold below face value and mature at face value, resulting in a guaranteed return for the investor. Additionally, because zero coupon bonds do not pay periodic interest payments, they are less affected by changes in interest rates, leading to lower volatility. Tax benefits of amortization do not apply to zero coupon bonds, as there are no interest payments to be amortized.

An Investor Would Consider Investing in a Zero Coupon Bond