Bonds That Do Not Pay Interest During Their Lifetime

D

The correct answer is D. Zero coupon bonds.

Zero coupon bonds are bonds that do not pay periodic interest payments like most bonds. Instead, they are issued at a discount to their face value and are redeemed at their face value at maturity. The difference between the purchase price and the face value is the return to the investor, and it represents the interest earned over the life of the bond.

For example, if a zero coupon bond with a face value of $1,000 is sold for $800, the investor will receive $1,000 at maturity, and the $200 difference represents the interest earned over the life of the bond.

Municipal bonds, on the other hand, are issued by state and local governments to finance public projects and services. These bonds typically pay periodic interest payments to the bondholder until maturity.

Callable bonds give the issuer the option to redeem the bonds before their maturity date. They often pay a higher interest rate than non-callable bonds to compensate for the risk of early redemption.

Convertible bonds give the bondholder the option to convert the bond into a specified number of shares of the issuer's common stock.

In summary, zero coupon bonds do not pay interest during the life of the bond, while municipal bonds, callable bonds, and convertible bonds do pay periodic interest payments to the bondholder.