Author Question: Explain the rationale for why anyone would choose to buy a zero coupon bond that pays no interest ... (Read 16 times)

Tazate · **on:** Jul 11, 2018

Explain the rationale for why anyone would choose to buy a zero coupon bond that pays no interest prior to maturity and pays only the face value of the bond at maturity.

What will be an ideal response?

Question 2

EVA is a multi-period rather than a one-period measure of true economic performance

Indicate whether the statement is true or false

cuttiesgirl16 · **Reply #1 on:** Jul 11, 2018

Answer to Question 1

Zero coupon bonds pay only the face value at maturity and nothing else. Thus these bonds may be attractive to investors that have specific maturity needs such as saving for a young child's eventual college tuition. Zero coupon bonds also eliminate the concern of reinvestment rate risk, or what to do the intermediate cash flows that occur prior to maturity with more conventional coupon bonds. Finally, zero coupon bonds sell at a deep discount from face value.

Answer to Question 2

FALSE