What Are Zero Coupon Bonds?

Zero Coupon Bonds (ZCBs) are bonds that carry a ‘zero’ coupon rate. Therefore Zero Coupon Bonds do not pay interest to the investors.

ZCBs are issued at par value and redeemed at a premium. It is this difference between the purchase price of the bonds and its redemption value i.e the premium that signifies returns for the investors.

Zero Coupon Bonds carry ‘zero’ reinvestment risk.

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