Q:
A:
Zero
coupon bonds are frequently cited as a popular investment
vehicle for education savings. What are the main characteristics
of these instruments?
I. They pay semiannual interest payments on $1,000 par.
II. They are bought at a deep discount from face and mature for face.
III. They are government guaranteed
IV. They pay no interest
a) II, III, IV
b) I, III
c) II, IV
d) II, III
I. They pay semiannual interest payments on $1,000 par.
II. They are bought at a deep discount from face and mature for face.
III. They are government guaranteed
IV. They pay no interest
a) II, III, IV
b) I, III
c) II, IV
d) II, III
The correct answer is c.
Zero coupon bonds, as the name implies, pay no interest or coupon payments. They are bought (and traded) at a discount from face, and mature for face. The investorâ€™s only return is the difference between the discount purchase price and face at maturity. Although one popular type of zero coupon bond, U.S. Treasury STRIPS, is government guaranteed; this does not apply to all such bonds.
Zero coupon bonds, as the name implies, pay no interest or coupon payments. They are bought (and traded) at a discount from face, and mature for face. The investorâ€™s only return is the difference between the discount purchase price and face at maturity. Although one popular type of zero coupon bond, U.S. Treasury STRIPS, is government guaranteed; this does not apply to all such bonds.
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RELATED TERMS

ZeroCoupon Bond
A debt security that doesn't pay interest (a coupon) but is traded ... 
Coupon Rate
The yield paid by a fixed income security. A fixed income security's ... 
Coupon Bond
A debt obligation with coupons attached that represent semiannual ... 
Current Coupon Bond
A bond with a coupon rate that is within 0.5\% of the current ... 
Ex Coupon
A bond or preferred stock that does not include the interest ... 
Coupon
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