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Definition

Zero Coupon Bond

Zero Coupon Bond is a bond issued at a discount (i.e. below par value), earning no interest but redeemable at its par value, thus providing a guaranteed capital gain.

This kind of bond pays no periodic interest, but simply returns a given amount of principal at a stated maturity date. Zero coupon bonds are sold at a discount from the maturity amount to provide the holder a compound rate of return for the holding period.

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