Which of the Following Is Not True Regarding Zero-Coupon Bonds

question 23

Multiple Choice

Which of the following is not true regarding zero-coupon bonds?

• A) They are issued at a deep discount from par value.
• B) Investors are taxed annually on the amount of interest earned, even though the interest will not be received until maturity.
• C) The issuing firm is permitted to deduct the amortized discount as interest expense for federal income tax purposes, even though it does not pay interest.
• D) Zero-coupon bonds are purchased mainly for tax-exempt investment accounts, such as pension funds and individual retirement accounts.
• E) All of the above are true.

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Definitions:

Depression

a severe and prolonged downturn in economic activity, characterized by significant fall in spending and high unemployment.

Unemployment Rate

The level of unemployment within the labor force characterized by active job search efforts.

Inflation

The rate at which the average cost of goods and services ascends, leading to a decrease in monetary value over time.

Creditors

Individuals or institutions that lend money or extend credit to others, expecting repayment in the future with interest.