- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 1. Fixed-Income Instrument Features
- Subject 1. Basic Features of a Fixed-Income Security
CFA Practice Question
Prior to the maturity date, a zero-coupon bond will always sell at a price ______.
B. less than par value
C. greater than par value
A. zero-coupon bonds initially sell at a discount to par value, but their price increases to a premium above par value before the bond maturity date.
B. less than par value
C. greater than par value
Correct Answer: B
The only promised cash flow for a zero-coupon bond is the return of par value on the maturity date. The investment return is generated as the bond's value approaches the par value from below.
User Contributed Comments 3
| User | Comment |
|---|---|
| 2014 | The amount is amortized over a period of bond to reach par value from discount |
| ars2011 | it reaches par at maturity so naturally it will be less than par before maturity , basically it converges to par |
| annaschot | This is not necessarily true in the current economic climate. There are zero-coupon bonds that trade above par value, thus generating a negative yield. (Yes investors actually PAY to hold this bond vs GET PAID to hold this bond. E.g. a german zero-coupon government bond) |