A Zero-Coupon Bond is a debt instrument that does not pay periodic interest (coupon).
Also Known As:
- Discount Bond
Key Features:
- Issued at a deep discount to its face value
- No interest payments during the bond’s life
- Redeemed at face value upon maturity
- Profit = Face Value – Purchase Price
Types:
- Corporate Zero-Coupon Bonds – Issued by companies
- Government Zero-Coupon Bonds – Issued by the government (e.g., STRIPS in the USA, certain RBI bonds in India)
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