Login / SignupWhat is a 'Zero-Coupon Bond'?
A zero-coupon bond, also known as an "accrual 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.
Some zero-coupon bonds are issued as such, while others are bonds that have been stripped of their coupons by a financial institution and then repackaged as zero-coupon bonds. Because they offer the entire payment at maturity, zero-coupon bonds tend to fluctuate in price much more than coupon bonds.
| Zero Bond Price Formula | |||||||
| Zero Bond Price = |
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| Variables |
| M = value at maturity, or par value |
| n = number of years |
| i = market rate, or required yield |
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