ZERO COUPON BONDS

ZERO COUPON BONDS :
- The regular government bond has a "coupon" (interest bearing certificate) that is payable twice a year.
- Interest is paid two times a year, and therefore, there are regular cash inflows.
- Such bonds are normally issued at face value and the redemption value of the bond is also the face value,
- The subscribers / holders to zero coupon bonds do not receive any interest during the life of the bonds.
- Instead investors buy zero coupon bonds at a deep discount from their face value, which is the amount a bond will be worth when it matures.
- To put it is a special type of bond which carrier no coupon rate, is sold at a deep discount in relation to its face value, and matures at its face value.
- The maturity dates on zero coupon bonds are normally long term, ten years, fifteen years or more.