A zero coupon bond is sold at a discount and does not pay periodic interest. Instead, the interest is implicit and is calculated by amortizing the difference between the purchase price and the face value over the life of the bond.

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A Zero Coupon Bond

Question 64

Multiple Choice

A zero coupon bond:

A) is sold at a large premium.
B) has implicit interest which is calculated by amortizing the loan.
C) has less interest rate risk than a comparable coupon bond.
D) can only be issued by the U.S.Treasury.
E) has a price equal to the future value of the face amount given a specified rate of return.

Correct Answer: