Final answer:
The face amount of a zero-interest bearing note is not equal to its present value because the present value calculation must account for factors such as the time value of money and interest payments, which are absent in a zero-interest note.
Step-by-step explanation:
The statement that the face amount of a zero-interest bearing note is equal to its present value is false. In financial terms, when an investor buys a bond, they are essentially receiving an 'I owe you' from the borrower. The bond has a face value, which is the amount the borrower will repay the investor at maturity. Additionally, if the bond bears interest (coupon rate), these payments are made periodically until maturity.
The present value of a bond is calculated by taking into account the bond's face value, coupon rate, maturity date, and prevailing market interest rates. This computation results in the maximum price a buyer would be willing to pay for the bond, which can differ from the face value. In the case of a bond being issued at an interest rate (such as 8%), its present value may match the amount the borrower receives; however, with a zero-interest bearing note, the present value would be less than the face value because the lender is not receiving periodic interest payments to compensate for time value of money.