Zero Coupon Bonds

Zero Coupon Bonds

zero coupon bonds municipal treasuryA Zero coupon bond (also known as a discount 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 so-called "coupons," hence the term zero-coupon bond. Investors earn interest via the difference between the discounted price of the bond and its par (or redemption) value. Examples of zero-coupon bonds include U.S. Treasury bills, U.S. savings bonds, and long-term zero-coupon bonds.In contrast, an investor who has a regular bond receives income from coupon payments, which are usually made semi-annually. The investor also receives the principal or face value of the investment when the bond matures.

Some zero coupon bonds are inflation indexed, so the amount of money that will be paid to the bond holder is calculated to have a set amount of purchasing power rather than a set amount of money, but the majority of zero coupon bonds pay a set amount of money known as the face value of the bond. Zero coupon bonds may be long or short term investments. Long-term zero coupon maturity dates typically start at ten to fifteen years. The bonds can be held until maturity or sold on secondary bond markets. Short-term zero coupon bonds generally have maturities of less than one year and are called bills. The U.S. Treasury bill market is the most active and liquid debt market in the world.

Definition Source: Wikipedia

I get several emails a week from individuals looking for definitions or strategy explanations. To answer these questions I will try to post a definition of a word that is used often in the hedge fund industry.

Read dozens of additional articles like this within the guide to Hedge Fund Terms.

- Richard

Permanent Link: Zero Coupon Bonds
Subscribe To this Blog via RSS Or By Email

Related Articles:

1. Top 10 Hedge Fund Trades of 2007
2. Top 5 Hedge Fund Strategies
3. Hedge Fund Group Seeing Rapid Growth
4. Top 10 Hedge Fund Myths
5. Hedge Fund Blog Table of Contents

Related Terms: Zero Coupon Bond, Zero Coupon Bonds, Zero-Coupon Bonds, Zero Coupon Bond Rates, Zero Coupon Municipal Bonds, Zero Coupon Bond Calculator, Zero Coupon Treasury Bonds, What is A Zero Coupon Bond?, Zero Coupon Bond Definition, Zero Coupon Bond Explanation

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.

Hedge Fund Videos | 30+ Free Videos on Hedge Funds