Which one of the following statements correctly describes the major drawback of a zero-coupon bond?
A) Unless the bond is held in a tax-sheltered account, the investor must pay taxes on the annual accrued interest even though no interest is actually received.
B) The conversion feature found on most zero-coupon bonds generally requires the investor to switch to a coupon-bearing bond after a period of 5 years.
C) The lack of an annual coupon basically prohibits the investor from locking in a high rate of return.
D) Because there is no reinvestment of a coupon payment, large capital losses accrue when interest rates decline.
Answer: A
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A) is less than B) exceeds C) equals D) not enough information to determine
Preferred stockholders have what right over common stockholders?
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