Zero coupon bonds do not pay interest but are sold at a discount from their face value (par value). Therefore, option D is the correct choice as it correctly identifies both characteristics of zero coupon bonds. Japanese investors may find them attractive as they are not required to pay taxes on capital gains, but this is not a defining characteristic of zero coupon bonds.

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Zero Coupon Bonds

Question 77

Multiple Choice

Zero coupon bonds

A) pay interest at zero percent.
B) are sold at a discount from par value.
C) are attractive to Japanese investors who are not required to pay taxes on capital gains.
D) pay interest at zero percent and are sold at a discount from par value.

Correct Answer: