CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

Prior to the maturity date, a zero-coupon bond will always sell at a price ______.

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)
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