John Peterson purchased a bond that is priced far below its face value, that makes no interest payments, and that will be redeemed at its face value at maturity. In all likelihood, he purchased a(n) ____________ bond.

Question

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John Peterson purchased a bond that is priced far below its face value and that makes no interest payments. This type of bond is known as a zero-coupon bond. At maturity, the bond will be redeemed at its face value, and the investor will realize a profit. The lack of interest payments is why the bond is priced far below its face value.

John Peterson Purchased a Bond That Is Priced Far Below