Which statement accurately describes zero-coupon bonds?

Zero-coupon bonds are a type of bond that does not pay periodic interest (or coupons) to investors. Instead, these bonds are issued at a discount to their face value and provide a return to investors through capital appreciation when they mature.

The statement that accurately describes zero-coupon bonds is that they can vary in price between issuance and maturity due to market changes. This reflects the fundamental nature of bonds, where their prices are influenced by various factors, including interest rates, credit risk, and market liquidity. Since zero-coupon bonds do not pay interest throughout their life, their price can fluctuate significantly based on market conditions. If interest rates rise after a zero-coupon bond is issued, its price will typically fall, and if interest rates decline, its price usually rises. This dynamic allows the bond's market value to change over time until maturity.

Understanding this aspect is crucial for investors, as the market price variability impacts investment strategies and potential returns when measuring the performance of zero-coupon bonds compared to other fixed-income securities. This characteristic is vital in terms of risk assessment and portfolio management in the context of interest rate movements and overall market conditions.