Question

Consider the following statements :

1. Indexed bonds do not have a fixed percentage of returns
2. The face value of Zero coupon bond is equal to the return value of the bond.

Which of the above are correct?

• A.
  1 only
• B.
  2 only
• C.
  Both 1 and 2
• D.
  None of the above

Answer 1

The correct option is C

Both 1 and 2
Index-linked bonds are issued by governments to help mitigate the impact of inflation, paying a real yield plus accrued inflation. So they do not have a fixed percentage of return.

A zero-coupon bond is a debt security instrument that does not pay interest. Zero-coupon bonds trade at deep discounts, offering full face value (par) profits at maturity.The difference between the purchase price of a zero-coupon bond and the par value, indicates the investor's return.