Zero coupon bonds are bonds that are issued:
A)With a zero effective interest rate.
B)At a rate that provides a large discount at issuance.
C)At a rate that has zero difference between the coupon rate and the market rate of interest.
D)As bonds that will have zero amortization recorded over the life of the bonD.Zero coupon bonds are issued at a large discount because they do not pay cash interest during the life of the bond.At maturity, the bonds will have earned the market rate of interest at the issue date.

Question

Quizplus · Accepted Answer

Zero coupon bonds are issued at a large discount to their face value, which means that they are sold for less than their face value. This is because the bond does not pay any cash interest during the life of the bond, unlike other bonds that pay periodic interest. At maturity, the bond will be worth its face value, and the investor will earn the market rate of interest at the issue date. Therefore, option B is the correct answer.

Zero Coupon Bonds Are Bonds That Are Issued