Question

Zero coupon bonds:_____________.A. are valued using simple interest.B. are issued only by the U.S. Treasury.C. create a tax deduction for the issuer only at maturity.D. are issued at a premium.E. create annual taxable income to individual bondholders.

Answer 1

Answer: E- create annual taxable income to individual bondholders

Explanation: Zero coupon bonds are bonds that are sold or bought by investors lower than the face value of the bond. they are long term bonds that do not generate interest throughout the life of the bonds.

These bond are usually issued by the US Treasury, Corporations, Local and state Government.

Bond owners can only make money on bond as the price in the market fluctuates against the face value. No payment is made on these bonds until maturity which is a long time say 10 to 15 years.

On these bond investors may have to pay income taxes on the interest that accrue on the bond yearly.