Which term describes a bond that is not currently paying interest?

The correct term for a bond that is not currently paying interest is known as a Zero Coupon Bond. These bonds are unique because they do not pay periodic interest (or coupon payments) like traditional bonds. Instead, they are issued at a discount to their face value and the return is realized when the bond matures. At maturity, the bondholder receives the face value of the bond, which is greater than the initial investment.

In contrast to other choices, callable bonds are issued with the option for the issuer to redeem them before maturity, which typically involves interest payments. Variable rate bonds pay interest that fluctuates based on a benchmark interest rate, meaning they also provide regular interest payments. The term "flat" is often used in different contexts, such as to describe something with no yield or an inactive market phase, but it does not specifically refer to bonds that do not pay interest at all. Therefore, Zero Coupon Bond is the most precise term for a bond that does not generate interest payments during its life.