What is a "zero coupon" bond?
John, the best way and the easiest way to describe a zero coupon bond is - It is a bond that is sold under its face value, meaning at a discount. however when it matures it will pay the face value back. For example a face value of a bond is 100 and this is a 10 year bond ( this is just an illustration) zero coupon bond would sell for 90 for example with 100 due in 10 years. I hope this makes sense. Please let me know if you have any other questions.
| 01.27.14 @ 20:13
Thank you, John D, for your question; The Zero Coupon Bond is a bond that is purchased at a “deep” discounted price from their face value. When the Zero Coupon Bond “matures” or comes due, the investors will receive a lump sum equal to the initial investment plus any imputed interest.
Interest is not paid until it “matures” which can be ten, fifteen or more years. The investors may still have to pay federal, state or local income tax; this tax is called imputed or “phantom” interest which accrues each year.
| 01.28.14 @ 01:17
0 coupon bond doesn't give you semi annual payments. It's a basic form of a bond, you buy it at a discount and wait until maturity to get paid the par value. | 03.03.15 @ 22:27