Multiple choice

A five-year deep discount bond would?

  1. Pay interest on a quarterly basis

  2. Pay interest on a yearly basis

  3. Be redeemed on maturity at the face value which is higher than the issue price with no payments in between

  4. Would offer yield tax free income
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Deep discount bonds are issued at a significant discount to their face value and make no interest payments during their term. At maturity, the bondholder receives the full face value, with the difference between issue price and redemption value representing the investor's return.

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