The issue price of zero-coupon bonds is the present value of their face amount.

Question

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The issue price of zero-coupon bonds is calculated as the present value of their face amount discounted at the prevailing market interest rate. This is because zero-coupon bonds don't pay any interest, and hence their entire value is realized at maturity when the face amount is paid back to the bondholder. Therefore, the issue price is the amount that, if invested at the prevailing market interest rate, would grow to become the face amount at maturity.

The Issue Price of Zero-Coupon Bonds Is the Present Value