zero-coupon bond

Thân thiện

An investor holds a zero-coupon bond until its maturity date.

Definition

1. Noun:
   • A type of debt security (bond) that is sold at a price significantly lower than its face value (par value) and pays no periodic interest payments (coupons). The investor's return is the difference between the discounted purchase price and the full face value received at maturity.

Usage

• As a subject: "A zero-coupon bond is attractive for investors with a specific future financial goal."
• As an object: "The pension fund purchased several long-term zero-coupon bonds."
• With modifiers: "The 20-year zero-coupon bond was issued at a deep discount."

Examples

• An investor buys a 10-year zero-coupon bond with a face value of $1,000 for $500 today. After ten years, the investor receives $1,000.
• Because they make no interim payments, zero-coupon bonds are highly sensitive to changes in interest rates.
• The price of the zero-coupon bond will gradually accrete (increase) on the balance sheet until it reaches its maturity value.

Advanced Usage

• Tax Consideration: In some jurisdictions, the imputed interest on a zero-coupon bond (the annual increase in value) may be taxable as income even though no cash is received until maturity. This is known as "phantom income."
• Stripped Bonds: Many zero-coupon bonds are created through a process called "stripping," where the coupon payments and the principal repayment of a regular bond are separated and sold as individual securities.

Variants and Related Words

• Zero-coupon security (n): A broader category that includes instruments like zero-coupon bonds.
• Strip bond (n): A common synonym, especially for bonds created by stripping.
• Accretion (n): The process of the bond's book value increasing from the purchase price to its face value over time.
• Deep discount bond (n): A general term for bonds sold well below par, which includes zero-coupon bonds.

Synonyms

• Discount bond: (General term for any bond sold below its par value.)
• Accretion bond: (Highlights the accounting treatment of the bond's value increase.)

Related Phrases

• To trade at a deep discount: Describes the market price action of such bonds.
  • Example: "All long-dated zero-coupon bonds are trading at a deep discount due to rising interest rates."
• To mature at par: Refers to the bond's repayment at its full face value.
  • Example: "The key feature is that it will mature at par, providing a known future value."

Học thuật

Noun

1. a bond that is issued at a deep discount from its value at maturity and pays no interest during the life of the bond; the commonest form of zero-coupon security

Từ đồng nghĩa

• zero coupon bond