Practice Quiz

FRM Financial Risk Manager Practice Test

Category - Bond

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Tom is thinking of buying zero-coupon bonds. What are these bonds?
  1. They are bonds that don't make regular interest payments.
  2. They are bonds that mature within a year.
  3. They are bonds whose accrued interests add up to more than 0.
  4. They are bonds that have a special number zero to distinguish them from normal bonds.
Explanation
Zero coupon bonds are bonds that don’t make regular interest payments.

Key Takeaway: If Tom buys the zero-coupon bonds he doesn’t get interest payments, but he buys the bond at a discount from the face value of the bond. He will be paid the face value when the bond matures. Typically, the face value is the result of the accrual of interest on the original price paid.
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