Can a zerobond be quoted above par?

Factual Questions
1

I’m not a financial geek, but I’m somewhat interested in economics and recently browsed the market reports in my daily. I stumbled over something I found in the bond section.
AFAIK the quotations of bonds are quoted in percentage of nominal value. I.e. if a bond quotes at 45.50, you have to pay $45.50 to buy bonds at a face value of $100. This depends on the bond’s nominal rate of interest (if it’s higher than the current interest rates on the market, the bond price will go up) and the credit worthiness of whoever issued the bond. Right so far?
Then you have zerobonds. A zerobond is a bond that doesn’t pay regular interests; instead, you buy it and get the full accumulated interests paid out when the bond expires. You might, for example, buy a zerobond now at 50 per cent with date of expire 01/01/2010. I pay $500 now, and on January 1, 2010, I get $1,000 from the issuer (unless I sell the bond before, of course).

So back to the market report. I noticed that one zerobond (issued by the government of Austria and expiring in 2016 or something), was quoted at 296 %. How can that be? Who would be willing to pay $296 now for the perspective of getting $100 in 2016, without receiving any payments in between? What am I getting wron here?

2

A pure zero-coupon bond should never sell for above its face value as you point out. Without knowing more about the bond, I can’t tell you if it is doing so or why it might do so.

One reason it could do so is if it had any other features like convertibility. For example, suppose a company issues a zero-coupon bond with a $1000 face value which is convertible (at the owner’s option) into 50 shares of stock. If the stock price rises to $25, then the bond would be worth at least 25*50 = $1250 even though it was a zero. Of course, I know of no Austrian bonds that are convertible (and I’m not even sure what a government bond would be convertible into).

It could also be payable in cash or the market value of a fixed amount of gold. If the price of gold rose substantially, again it could sell above its face value.