A zero-coupon bond is initially sold at a deep discount from its face value, rather than at a premium or at par value. This is because it does not pay periodic interest payments. Instead, investors receive the face value of the bond at maturity.

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A Zero-Coupon Bond

Question 212

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: