Which One of the Following Statements Correctly Describes the Major

question 121

Multiple Choice

Which one of the following statements correctly describes the major drawback of a zero- coupon bond?

• A) Unless the bond is held in a tax-sheltered account, the investor must pay taxes on the annual accrued interest even though no interest is actually received.
• B) The conversion feature found on most zero-coupon bonds generally requires the investor to switch to a coupon-bearing bond after a period of 5 years.
• C) The lack of an annual coupon basically prohibits the investor from locking in a high rate of return.
• D) Because there is no reinvestment of a coupon payment, large capital losses accrue when interest rates decline.

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Definitions:

Pope Leo X

was head of the Catholic Church from 1513 to 1521, known for his lavish spending and involvement in the sale of indulgences, which contributed to the Protestant Reformation.

Man of Learning

An individual known for their extensive knowledge or scholarly attainments, often in a specific field.

Head of State

The individual who serves as the chief public representative of a nation, often embodying its sovereignty and executing its laws and policies.

Impasto

A layer of thickly applied pigment.