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Zero-coupon bonds are issued at a deep discount and repay the par value at maturity. The difference between the purchase price and the par value represents the investor's return.
To calculate the price of a zero-coupon bond—i.e. the present value —the first step is to find the bond’s future value (FV), which is most frequently $1,000. The next step is to add the yield-to-maturity ( YTM ) to one, and then raise it to the power of the number of compounding periods.
Zero-coupon bond pricing is based on the concept of present value. The price of a zero-coupon bond is calculated by discounting the bond's face value using the prevailing market interest rate over the bond's time to maturity .
Legacy model quarterly rates can be viewed within the Selected Asset and Liability Price Report under Spot (Zero Coupon) Rates on the following website: http://www.occ.gov/publications/publications-by-type/other-publications-reports/ots/ots-asset-liability-price-tables.html.
So a 10 year zero coupon bond paying 10% interest with a $1000 face value would cost you $385.54 today. In the opposite direction, you can compute the yield to maturity of a zero coupon bond with a regular YTM calculator.
For example, you might pay $5,000 for a zero-coupon bond with a face value of $10,000 and receive the full price, $10,000, upon maturity in 20 or 30 years. Zero-coupon CDs work the same way....
A zero-coupon bond pays no coupon or interest payment. Investors earn a return from zeros because they buy the bond at a discount to face value and then are paid the face value at the bond's...
A zero-coupon bond is a bond that pays no interest and trades at a discount to its face value. It is also called a pure discount bond or deep discount bond. U.S. Treasury bills are an example of a zero-coupon bond.
Zero-coupon bonds are debt securities that are sold at a deep discount for a price far below their face value. This is because they don't make regular interest payments.
Alessandra Nicole. Edited by. Summary: Zero-coupon bonds, also known as accrual bonds, are unique debt securities that don’t pay interest but trade at a significant discount, yielding a profit upon maturity.