Definition of Zero-Coupon Bond
What is a Zero-Coupon Bond
A zero-coupon bond is a type of bond or debt security that is sold at a discount to its face value and does not make any periodic interest payments. Instead of receiving interest payments, the investor receives the face value of the bond at maturity.
Issuance of Zero-Coupon Debt
Zero-coupon bonds are issued by governments, municipalities, corporations and other entities to raise capital. These bonds are often used to fund long-term projects, such as infrastructure or to finance government debt.
Difference Between a Zero-Coupon Bond and a Traditional Bond
The main difference of a zero-coupon bond, as compared to a traditional bond, is that it does not make any periodic interest payments, which means that the investment return is based entirely on the difference between the purchase price and the face value of the bond at maturity. Since there are no coupon payments, zero-coupon bonds are often priced at a deep discount to their face value.
Buyers of Zero-Coupon Bonds
Investors who purchase zero-coupon bonds accept the risk that they will not receive any income from the bond until maturity, but they also have the potential to earn a higher investment return than traditional bonds. Zero-coupon bonds are often used by investors who are seeking to invest in long-term bonds without having to worry about interest rate risk or reinvestment risk.
GlobEx Markets Financial Dictionary of Terms, Phrases and Concepts
The GlobEx Markets financial dictionary is a reference resource that provides the definitions and explanations of various financial terms, phrases and concepts that are used in international finance and global investing. It includes a broad range of financial terms, such as those related to stocks, bonds, currencies, commodities, options, futures, crypto and much more.
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Benefits of the GlobEx Markets Financial Dictionary
There are several benefits to using the GlobEx Markets financial dictionary, including:
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Related Investment Terms
Interest Rate
Par Value
Rate of Return
