Definition
Zero-coupon bonds don't pay regular interest. Instead, they're issued at a significant discount to face value and mature at par. The return is the difference between purchase price and face value. They're highly sensitive to interest rate changes due to their long duration.
Formula
Price = Face Value / (1 + r)^n
Example
A 10-year zero-coupon bond with $1,000 face value might be purchased for $614, yielding about 5% annually.
FAQ
What is Zero-Coupon Bond?
A bond that pays no periodic interest but is issued at a discount.
How do you calculate Zero-Coupon Bond?
A common formula for Zero-Coupon Bond is: Price = Face Value / (1 + r)^n
Why is Zero-Coupon Bond important?
Zero-Coupon Bond helps investors evaluate fixed income and make more informed decisions.