Asked by Elizabeth Ridgeway on May 20, 2024
Verified
The total interest paid on a zero-coupon bond is equal to:
A) Zero.
B) The face value minus the issue price.
C) The face value minus the market price on the maturity date.
D) $1,000 minus the face value.
E) $1,000 minus the par value.
Zero-Coupon Bond
A bond that does not pay interest during its life but is sold at a discount from its redemption value.
Interest Paid
The amount of money paid over a period for the use of borrowed funds.
Issue Price
The price at which new or existing securities are offered for sale to the public.
- Acquire knowledge about the framework and components of a bond, specifically noting the distinctions between face value, market price, clean price, and dirty price.
Verified Answer
VS
Victoria SandovalMay 24, 2024
Final Answer :
B
Explanation :
The total interest paid on a zero-coupon bond is indeed the face value minus the issue price. This is because a zero-coupon bond is sold at a discount to its face value and does not pay periodic interest. The difference between the purchase price (issue price) and the face value (which is paid at maturity) represents the interest earned by the holder.
Learning Objectives
- Acquire knowledge about the framework and components of a bond, specifically noting the distinctions between face value, market price, clean price, and dirty price.
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