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Bonds 204: Zero Coupon Securities

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1.
The price at which a zero coupon security is issued _______.
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Is far below its par. Zero coupons are issued at prices far below the par, or face value, which the bond issuer pays when the bond matures.
2.
The ZERO in the term ZERO COUPON means _______.
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The security does not pay any interest until maturity. Hence, it has a zero coupon.
3.
Even though zero coupon securities do not pay regular interest payments, you still pay taxes on your earnings as they accrue.
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True. The growth that accumulates in zeros is taxable as it accrues (with the exception of some government zeros, which may be tax-free municipals or tax-deferred US savings bonds).
4.
A corporate zero coupon convertible bond _______.
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Can be converted from a bond to shares of company stock. Convertible bonds can be exchanged for stock.
5.
A strip can be based on _______.
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Either A or B. Strips are based on either the interest or principal of government securities, which are separatedor strippedto back these kinds of instruments.