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If a corporate zero coupon bond issuer defaults on its bonds, the bondholder still collects the par value of the bonds.

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True

False

False. If the issuer defaults, the zero coupon bondholder may receive nothing for his or her investment.

A bond's coupon refers to _______.

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The paper it's printed on

Its annual interest payments

Its par

Its maturity date

Its annual interest payments. A bond's coupon is the rate of annual interest the issuer pays to the bondholder.

A strip can be based on _______.

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The interest on government securities

The principal of government securities

Both A and B

Either A or B

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.

The relative value of zero coupon securities depends on _______.

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The credit of the issuer

Interest rates

Both A and B

Neither A nor B

Both A and B. The value of zero coupons in relation to other investments is based on both the creditworthiness of the issuer and the prevailing interest rates.

The price at which a zero coupon security is issued _______.

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Is far below its par

Is far above its par

Is equal to its par

May be above or below par

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.

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