turned. All return is realized at maturity. It provides an investment return normally by being bought at a discounted price. Long dated zero coupon bonds therefore trade at prices well below their eventual redemption price of par. Related Terms Most Viewed Browse Definitions by Letter: # Y Z strip baccalaureate bond. The interest earned on a zero-coupon bond is an imputed interest, meaning that it is an estimated interest rate for the bond, not an established interest rate.
Zero-coupon bond, a bond that provides no periodic interest payments to its owner. It is important to recognize that interest accumulations on corporate and.S. Investing, bonds / Fixed Income, what is a Zero-Coupon Bond, a zero-coupon bond is a debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value. A fixed reinvestment rate is an advantage if you believe interest rates are likely to fallthere is no concern about reinvesting interest payments at a rate lower than.
Zero coupon bond definition
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It is sold at a discount from par and matures at par. 0 0, a bond that pays no coupon but is issued at a deep discount to face value. Investors can choose zero coupon bonds that are issued from a variety of sources, including the.S. Of course, the opposite also holds true. 0 0 Also termed a zero bond, a bond that does not pay interest, in which the return is generated by the difference between the purchase price and the face value paid at maturity. Income is accrued on zero-coupon bonds even though they do not pay any interest before maturity. The difference between 20,000 and 6,757 (or 13,243) represents the interest that compounds automatically until the bond matures. 0 0 A bond that makes no periodic interest payments but instead is sold at a deep discount from its face value. After solving the equation, the original price or value would.73. Of course, if interest rates subsequently increase, the owner of a zero-coupon bond will be worse off because interest payments could have been reinvested at a rate higher than.
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Zero - coupon bond - Wikipedia