Question

How does an investor receive a return from a zero or very low coupon​ bond? ​(Select the best choice​ below.)

A. From the appreciation of the bonds.
B. From the tax savings of the bonds.
C. From the coupon payments.
D. From the increase of the market interest rate.

Answer 1

A. From the appreciation of the bonds

Step-by-step explanation:

Zero or very low coupon bond do not pay much (coupon) in their life (so C eliminated). They are sold at a deep discount to investor. As time pass, the value of the bond usually increases to approach face value (hence A).

Normally investor still have to pay for the imputed ("phantom") interest that comes from their real return (B eliminated)

If interest rate increases, the bond will decreases in value to create the required return the new buyer when they eventually sell it (D eliminated)