Explain the rationale for why anyone would choose to buy a zero coupon bond that pays no interest prior to maturity and pays only the face value of the bond at maturity
What will be an ideal response?
Zero coupon bonds pay only the face value at maturity and nothing else. Thus these bonds may be attractive to investors that have specific maturity needs such as saving for a young child's eventual college tuition. Zero coupon bonds also eliminate the concern of reinvestment rate risk, or what to do the intermediate cash flows that occur prior to maturity with more conventional coupon bonds. Finally, zero coupon bonds sell at a deep discount from face value.
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Indicate whether the statement is true or false
New Dimensions Athletic Association was formed to administer youth soccer leagues and tournaments in a popular urban area. All board members recently resigned stating that they could no longer assume the risk of participating on a board that did not insure its volunteer members against serious player injuries and other unanticipated problems. Collectively, these members are
A. self-insuring against risk.
B. filing a grievance against the association.
C. participating in risk reduction.
D. avoiding risk.