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Bonds 204: Zero Coupon Securities

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1.
The relative value of zero coupon securities depends on _______.
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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.
2.
A bond's coupon refers to _______.
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Its annual interest payments. A bond's coupon is the rate of annual interest the issuer pays to the bondholder.
3.
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.
4.
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).
5.
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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False. If the issuer defaults, the zero coupon bondholder may receive nothing for his or her investment.