A bond that only pays a principal payment at maturity date is known as a(n):
A) Blank bond.
B) Maturity bond.
C) Interest free bond.
D) Mini-coupon bond.
E) Zero coupon bond.

Question

Quizplus · Accepted Answer

A bond that only pays a principal payment at maturity date is called a zero coupon bond. It is also referred to as a deep discount bond or a pure discount bond because it is offered at a deep discount to its face value, and no interest payments are made on this bond during its lifetime. The difference between the purchase price and the face value of the bond represents the interest earned on the investment at maturity.

A Bond That Only Pays a Principal Payment at Maturity