Zero-couponbond,

🗣 SL提问: Zero-couponbond

✍️ Ai批改: A zero-coupon bond!

A zero-coupon bond, also known as a zero or a discount bond, is a type of bond that does not pay periodic interest (coupon payments) to the investor、Instead, it is sold at a discount to its face value and returns the face value at maturity.

Here's a brief overview:

Key characteristics:

1、No coupon payments: Unlike traditional bonds, zero-coupon bonds do not make regular interest payments (coupon payments) to the investor.
2、Sold at a discount: Zero-coupon bonds are sold at a price lower than their face value (also known as par value or maturity value).
3、Face value at maturity: On the maturity date, the bondholder receives the face value of the bond, which is the amount the bond was originally sold for.

How it works:

1、An investor buys a zero-coupon bond at a discounted price, say $80.
2、The bond has a face value of $100 and a maturity date in 5 years.
3、The investor does not receive any interest payments over the 5-year period.
4、On the maturity date, the investor receives the face value of $100.

Benefits and risks:

Benefits:

* Low purchase price: Zero-coupon bonds can be attractive to investors who want to buy a bond at a discounted price.
* Predictable return: The investor knows exactly how much they will receive at maturity.

Risks:

* No regular income: Zero-coupon bonds do not provide regular income, which may not be suitable for investors seeking steady income.
* Interest rate risk: Zero-coupon bonds are sensitive to changes in interest rates, which can affect their market value.

Types of zero-coupon bonds:

1、Treasury zeros: Issued by governments, such as the U.S、Treasury.
2、Corporate zeros: Issued by companies.
3、Municipal zeros: Issued by municipalities.

Who are they suitable for?

Zero-coupon bonds can be suitable for:

1、Long-term investors: Those who can hold the bond until maturity and do not need regular income.
2、Tax-deferred savings: Zero-coupon bonds can be used for tax-deferred savings, such as 529 college savings plans.

Keep in mind that zero-coupon bonds can be complex financial instruments, and it's essential to understand their characteristics, benefits, and risks before investing.

Do you have any specific questions about zero-coupon bonds or would you like more information on a particular aspect?