Which ONE of the following statements is true?
A) Zero coupon bonds have no coupon payments over its life and only offer a single payment at maturity.
B) Zero coupon bonds sell well below their face value (at a deep discount) because they offer no coupons.
C) Zero coupon bonds must sell for less than similar bonds that make coupon payments before maturity.
D) All of the above are true.

Question

Quizplus · Accepted Answer

All three statements are true. Zero coupon bonds offer no coupon payments over its life and only pay a single payment at maturity. These bonds are sold at a deep discount because they offer no coupons, which means investors are only paid a lump sum at maturity. Because the present value of a zero coupon bond's future cash flows is lower compared to a similar bond that has coupon payments, it must be sold at a discount to compensate investors.

Which ONE of the Following Statements Is True