Zero coupon debt
Sometimes it can take a few months for the bond to be drafted and actually issued to the public. This presents a problem.
The interest rate and terms of the bond are set when the bond is initially drafted up. By the time the bond actually hits the public, interest rates have usually changed.
What is a Zero Coupon Bond?
A bond issued at a premium sells for more than the stated value. A discounted bond is the opposite. The sale price is actually reduced lower than the stated price. A Zero coupon bond is a bond that sells without a stated rate of interest. Instead, investors receive the gain of the appreciated bond at maturity.
US savings bonds work this way.
Instead of paying regular interest payments, it pays them in one lump sum at maturity. The greater the length of time until the bond matures, the less the investor pays for it, and vice versa.
All Rights Reserved. The Ascent is The Motley Fool's new personal finance brand devoted to helping you live a richer life. Compare Popular Online Brokers. Purchasing a municipal zero coupon bond, buying zero coupon bonds in a tax-exempt account, or purchasing a corporate zero coupon bond that has tax-exempt status are a couple of ways to avoid paying income taxes on these securities. So the best time to invest in bonds is when interest rates are falling because the price or value of your bond investment is rising. Please help improve this article by adding citations to reliable sources.
The maturity dates on zero coupon bonds are usually long term, with many having initial maturities of at least 10 years. With the bond's deep discount, an investor can put up a small amount of money that can grow over many years. Investors can choose zero coupon bonds that are issued from a variety of sources, including the U.
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Most zero coupon bonds trade on the major exchanges. Your Money.
A zero-coupon bond is a debt security that doesn't pay interest but is traded at a deep discount, rendering profit at maturity when the bond is. A zero-coupon convertible is a fixed income instrument that combines a zero- coupon bond and a convertible bond. Due to the zero-coupon.
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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 zero-coupon bond is also known as an accrual bond.
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The price of a zero coupon bond can be calculated as: Compare Popular Online Brokers. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
Related Terms Zero-Coupon Convertible A zero-coupon convertible is a fixed income instrument that combines a zero-coupon bond and a convertible bond. Zero-Coupon Mortgage A zero coupon mortgage is a long-term commercial mortgage that defers all payments of principal and interest until maturity. Bond Valuation Bond valuation is a technique for determining the theoretical fair value of a particular bond. Deep-Discount Bond A deep-discount bond is a bond that sells at a significant lesser value than par.
Deferred Interest Bond Deferred interest bond is a debt instrument that pays interest in full only upon maturity.