A company issues bonds at a deep discount to face value. No interest is paid during their life, and they are redeemed at face value on maturity. What kind of bond is this?
Question and options
A company issues bonds at a deep discount to face value. No interest is paid during their life, and they are redeemed at face value on maturity. What kind of bond is this?
Perpetual bond
Convertible bond
Floating-rate bond
Zero-coupon bond
Answer and explanation
A zero-coupon (deep-discount) bond pays no periodic interest; the investor's return is the difference between the issue price and the face value received on redemption. A perpetual bond has no maturity date, and floating-rate and convertible bonds pay interest during their life.
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