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NISM Certifications · NISM-Series-XV: Research Analyst · Terminology in Equity and Debt Markets

In the context of bond markets, a 'zero-coupon bond' is best described as a debt instrument that:

A zero-coupon bond is issued at a discount to its face value and redeemed at face value on maturity, with no periodic interest payments. The investor's return is the gain between the discounted purchase price and the redemption amount.

  1. APays interest every month but repays no principal
  2. BIs issued at a discount to face value and redeemed at face value without periodic interestCorrect
  3. CPays interest only if the issuer earns a profit
  4. DIs convertible into equity shares at the holder's option

Explanation

A zero-coupon bond pays no periodic coupon. Its return comes from the difference between the discounted issue price and the face value paid at maturity. The other options describe different instruments such as income bonds and convertibles.

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