Question

A zero coupon bond: is sold at a large premium. can only be issued by the U.S. Treasury. has a market price that is computed using semiannual compounding of interest. has less interest rate risk than a comparable coupon bond. has a price equal to the future value of the face amount given a positive rate of return.

Answer 1

Answer:

A zero coupon bond:

A. is sold at a large premium.

B. has a price equal to the future value of the face amount given a positive rate of return.

C. can only be issued by the U.S. Treasury.

D. has less interest rate risk than a comparable coupon bond.

E. has a market price that is computed using semiannual compounding of interest.

Answer is : B

Explanation:

In classification of bonds we have a unique type of bond known as Zero-coupon bonds also know as Pure discount bonds, unlike traditional bonds they don’t pay coupon instead they are sold on discount basis and on maturity the bondholder receive a par value, for this reason the price will be at a discount on sale and on maturity be redeemed at par price showing a positive rate of return.