CFA Level I · CFA Level I Exam · Fixed-Income Cash Flows and Types
A bond pays no periodic interest and is issued at a deep discount to its face value, with the full face value repaid at maturity. This bond is best described as a:
The bond is a zero-coupon bond. It pays no periodic interest and is sold at a discount to face value, so the investor earns the difference between the purchase price and the face amount repaid at maturity. Step-up and floating-rate bonds both pay periodic coupons.
- Azero-coupon bondCorrect
- Bstep-up coupon bond
- Cfloating-rate note
Explanation
A zero-coupon bond makes no periodic coupon payments. The investor's return is the difference between the discounted purchase price and the face value repaid at maturity. A step-up bond pays coupons that rise on a schedule, and a floating-rate note pays coupons tied to a reference rate.
Did you get it right without looking?
One question tells you little. A timed set on Fixed-Income Cash Flows and Types shows your real accuracy, how long you take and where you lose marks.
More Fixed-Income Cash Flows and Types questions
- A bond's indenture specifies that the issuer will pay interest of 4% of par annually and repay the full par amount only on the maturity date…
- A bond indenture states that the issuer is a special purpose entity whose legal obligations to bondholders are separate from those of the sp…
- A 3-year fully amortizing loan of 100,000 carries a 6% annual rate and level annual payments of 37,411 made at year-end. The principal repai…
- A bond has a put option that lets the bondholder sell the bond back to the issuer at par on any coupon date. The put is most likely to be ex…
- A taxable investor with a marginal tax rate of 30% on interest considers a tax-exempt municipal bond yielding 3.50%. A taxable bond of simil…
- An inverse floating-rate note pays a coupon of 9% minus the reference rate, with a floor of 0%. The reference rate is 3% at one reset and 10…