Which of the following are the main features of Zero Coupon Bonds? 1. They are called deep discount bonds. 2. The price paid by investors is less than their face value. 3. The bonds are redeemed at par.

The correct answer is D. 1, 2 and 3.

Zero-coupon bonds are a type of bond that does not pay any interest during the life of the bond. Instead, the investor purchases the bond at a deep discount from its face value, and receives the face value of the bond at maturity. This means that the investor’s return on investment comes solely from the appreciation of the bond’s price over time.

Zero-coupon bonds are often used as a way to hedge against inflation, as they provide a fixed return that is not eroded by inflation. They are also popular with investors who are looking for a way to generate income in a tax-deferred account, such as a 401(k) or IRA.

Here is a brief explanation of each option:

1. They are called deep discount bonds.

Zero-coupon bonds are called deep discount bonds because they are purchased at a deep discount from their face value. For example, a zero-coupon bond with a face value of $1,000 that is purchased for $500 is said to be trading at a 50% discount.

1. The price paid by investors is less than their face value.

As mentioned above, zero-coupon bonds are purchased at a deep discount from their face value. This is because the investor is not receiving any interest payments during the life of the bond. The investor’s return on investment comes solely from the appreciation of the bond’s price over time.

1. The bonds are redeemed at par.

At maturity, the bond issuer will redeem the bond at its face value. For example, a zero-coupon bond with a face value of $1,000 that is purchased for $500 will be redeemed for $1,000 at maturity.

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