Thursday, December 30, 2010

Zero Coupon Bond

A Zero Coupon Bond is a bond that makes no regular interest payments, rather it has the interest payments embedded in the final principal payment. In other words the interest is the equivalent of the difference between the face value (e.g. $1000) and the initial investment. Zero coupons are also referred to as discount securities because you discount the final cash flow based on an interest rate and time period. The initial investment amount is the present value of the final repayment.

Synonyms: Zero-Coupon, Discount securities

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