waldziuchna

Risk free in this case is speaking about Government bonds, since they do not have default risk. So yes, a zero coupon bond which is a Government bond would be issued at a discount and would be risk free.

I think you are thinking about whether or not you would use a zero coupon bond as a risk free bond to calculate CAPM. I think the answer would be yes if it were the only bond available at the required maturity you were seeking. However, I doubt there will be a question on the exam that will give you two similar risk free bonds and ask you to choose one.

Maybe someone with more knowledge can further explain.