How Are Investors in Zero-Coupon Bonds Compensated for Making Such

question 22

Multiple Choice

How are investors in zero-coupon bonds compensated for making such an investment?

• A) Such bonds are purchased at a discount to their face value.
• B) The bond makes regular interest payments.
• C) The face value of these bonds is less than the value of the bond when the bond matures.
• D) Such bonds are purchased at their face value and sold at a premium at a later date.

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Definitions:

Net Income

Net income is the total earnings of a company after all expenses and taxes have been deducted from revenue, indicating the company's profitability.

Operating Cash Flows

Cash generated from a company's normal business operations, indicating its ability to generate enough cash to maintain or expand operations.

Sunk Cost

Expenses that have been paid and cannot be retrieved, and therefore, should not impact upcoming business strategies.

Opportunity Cost

The benefit foregone by choosing one alternative over another.