When a zero coupon bond is issued, interest is remitted periodically over the life of the bonds. The interest remitted is the present value of the face value of the bonds.

Question

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When a zero coupon bond is issued, no interest is remitted periodically over the life of the bond. Instead, the bond is issued at a discount to its face value, and the full face value is paid to the bondholder upon maturity. The difference between the discounted purchase price and the face value represents the interest earned on the bond.

When a Zero Coupon Bond Is Issued, Interest Is Remitted