Zero Coupon Bonds

A Zero Coupon Bond is a debt security that doesn’t pay interest (a coupon) the way a normal bond would. Instead the security is sold at a discount to face value and 404 Not Found

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steadily accrues interest until it reaches maturity (face value). A common zero coupon bond is a Treasury STRIP, derived from the fact that the security is “stripped” of the coupon and then sold as two different securities.

The formula for calculating zero coupon bonds is:

Zero Coupon Bond Value = F/(1+r)^t 

F =  Face Value of Bond

r = rate or yield

t= Time to Maturity