Zero-coupon bonds:
A) Offer a return in the form of a deep discount off the face value.
B) Result in zero interest expense for the issuer.
C) Result in zero interest revenue for the investor.
D) Are reported as shareholders' equity by the issuer.

Question

Quizplus · Accepted Answer

Zero-coupon bonds do not pay periodic interest payments. Instead, they are issued at a deep discount to their face value and provide a return to the investor at maturity when the bond is redeemed for its full face value. Therefore, option A is correct. Option B is not correct because the issuer still has to pay interest but it is implicit in the discount at which the bond is issued. Option C is also not correct because the investor still earns interest but it is earned as a one-time payment at maturity. Option D is not correct because zero-coupon bonds are still considered debt and are reported as such on the issuer's balance sheet.

Zero-Coupon Bonds