Question

What is Zero-Coupon Bond?

• A. Bond sold at the fraction of its face value
• B. Bond sold at the fraction of its cost price
• C. Bond issued for industrialists only
• D. None of the above

Answer 1

The correct option is A Bond sold at the fraction of its face value

Zero-Coupon Bond: A bond in which no periodic coupon(the periodic interest payment made to the bondholders during the life of the bond) is paid over the life of the contract. Instead, both the principal and the interest are paid at the maturity date. It is a debt security that doesn't pay interest but is traded as deep discount, rendering profit at maturity when the bond is redeemed for its full face value.

Hence zero-coupon bond is a bond sold at fraction of its face value.