SIE practice questioneasyZero-Coupon Bonds
Which statement is TRUE regarding zero-coupon bonds?
- AThey offer semiannual coupon payments
- BThey have the lowest price volatility
- CThey pay no periodic interest✓ Correct answer
- DThey are not subject to interest rate risk
Explanation
Why C — They pay no periodic interest
Zero-coupon bonds pay no interest until maturity. They actually have high price volatility and no periodic payments; they are affected by interest rate risk.
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