Zero coupon bonds

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bhargav barot

bhargav barot (Querist)
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10 January 2014 sir, what is zero coupon bond??

Nikhil Kaushik

Nikhil Kaushik (Expert)
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11 January 2014 A zero-coupon bond is a bond bought at a price lower than its face value, with the face value repaid at the time of maturity.It does not make periodic interest payments, or have so-called "coupons", hence the term zero-coupon bond. When the bond reaches maturity, its investor receives its par (or face) value.

for eg: I issue a 9 year bond at Rs 500 with a par value redemption at Rs 1000...I wont be making any interest payment in the interim...this would be called as zero-coupon bond...

However, in reality, I am paying 9% cumulative compounded interest but instead of paying as a periodic interest payment, I am paying in one shot at the redemption.

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