Question

Which of the following statements is most true about zero coupon bonds?

A) They typically sell at a premium over par when they are first issued.
B) They typically sell for a higher price than similar coupon bonds.
C) They are always convertible to common stock.
D) They typically sell at a deep discount below par when they are first issued.

Answer 1

The most true statement about zero coupon bonds is that they typically sell at a deep discount below par when they are first issued.

Step-by-step explanation:

Zero coupon bonds are bonds that do not pay interest during their term and are sold at a deep discount below their par value when they are first issued. This means that option D) 'They typically sell at a deep discount below par when they are first issued' is the most true statement about zero coupon bonds. The discount represents the interest that would have been paid on a traditional coupon bond. At maturity, the bondholder receives the full face value of the bond. Zero coupon bonds are an attractive investment for those who want a guaranteed return and are willing to wait until maturity to receive a payout.