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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