Question

Which of the following bonds makes no interest payments?

A. a bond whose coupon rate is equal to the market interest rates
B. a bond whose coupon rates are greater than market interest rates
C. a bond whose coupon rates are less than the market interest rates
D. zero coupon bond

Answer 1

A zero coupon bond makes no interest payments throughout its life and is paid at face value at maturity after being purchased at a discount. Option D is correct.

Step-by-step explanation:

A bond that makes no interest payments is a zero coupon bond. Unlike traditional bonds that pay periodic interest payments, a zero coupon bond is sold at a discount from its face value and does not pay any interest until maturity. At maturity, the holder is paid the face value of the bond. This type of bond contrasts with bonds that have a coupon rate, regardless of whether that rate is equal to, greater than, or less than the market interest rates.