The advantage of a zero-coupon bond to an investor is that the annual increase in the bond is taxable as ordinary income.
This is a major disadvantage since the bond has yielded no payments of interest with which tax can be paid.

Question

Quizplus · Accepted Answer

The statement is incorrect. The advantage of a zero-coupon bond to an investor is that the investor can purchase the bond at a deep discount from its face value and receive the full face value when the bond reaches maturity, making it a useful tool for long-term savings. Additionally, the increase in the value of the bond each year is not taxable until it is sold or reaches maturity, providing a tax-deferred growth benefit to the investor.

The Advantage of a Zero-Coupon Bond to an Investor Is