SIE Exam Question 865: Answer and Explanation

Question: 865

Which of the following accounts is most suitable to hold a zero-coupon bond?

• A. IRA
• B. Joint taxable account
• C. Payable on death account
• D. Totten trust

Correct Answer: A

Explanation:

Of the choices provided, an IRA is the most suitable account to hold a zero-coupon bond because the interest would be tax-deferred. If a zero-coupon bond were held in a taxable account, then tax would be due on the interest earned each year, even though no interest was paid to the bondholder.