What is a key characteristic of zero-coupon bonds?

Zero-coupon bonds are known for being sold at a steep discount from their face value. This means that when an investor purchases a zero-coupon bond, they pay significantly less than the bond's face value, and they do not receive any periodic interest payments throughout the life of the bond. Instead, the return comes from the difference between the purchase price (the discount price) and the face value, which is paid at maturity.

This structure allows investors to understand their total return at maturity, as the bond will be redeemed for its full face value, providing a lump-sum payment to the investor. This characteristic sets zero-coupon bonds apart from traditional bonds, which typically provide regular interest payments and are often sold at or near par value.

The other options do not accurately reflect the defining traits of zero-coupon bonds, as they do not involve regular interest payments, do not have fixed yields greater than market rates, and are generally not sold at a premium. Understanding these characteristics is crucial for investors when assessing the income and cash flow needs associated with different types of fixed-income securities.