Zero-coupon bond
Principles of Finance glossary · Valuation of Bonds & Stocks
Definition
A bond paying no coupons, sold at a discount and maturing at face value.
Zero-coupon bond in plain English
Most bonds pay you a little interest along the way (those payments are called "coupons"), but a zero-coupon bond pays nothing until the very end. Instead you buy it cheap and it's worth its full "face value" (the printed payoff) when it matures, so your entire profit is the gap between the low price you paid and the bigger amount you collect later. For example, you might pay $800 today for a bond that hands you $1,000 in five years; that $200 difference is your interest, just delivered all at once at the finish line instead of in dribs and drabs.
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