Zero-coupon definitions
| Word backwards | nopuoc-orez |
|---|---|
| Part of speech | adjective |
| Syllabic division | ze-ro-cou-pon |
| Plural | The plural form of "zero-coupon" is "zero-coupons." |
| Total letters | 10 |
| Vogais (3) | e,o,u |
| Consonants (5) | z,r,c,p,n |
Zero-coupon bonds, also known as discount bonds, are fixed-income securities that do not pay interest during their term. Instead, investors purchase these bonds at a discount from their face value, and they receive the full face value of the bond when it matures.
Characteristics of Zero-Coupon Bonds
Zero-coupon bonds have a few key characteristics that set them apart from traditional bonds. Firstly, since these bonds do not pay interest, they are typically sold at a significant discount from their face value. Secondly, the return on investment for zero-coupon bonds comes from the difference between the purchase price and the face value at maturity.
Advantages of Zero-Coupon Bonds
One of the primary advantages of zero-coupon bonds is that investors know exactly how much they will receive at maturity, making them a reliable investment option. Additionally, these bonds are often used for long-term financial goals or to fund specific future expenses, as the maturity date is predetermined.
Risks of Zero-Coupon Bonds
While zero-coupon bonds offer a guaranteed return at maturity, they do come with some risks. Since there are no interest payments, investors do not receive any income during the life of the bond. Furthermore, if interest rates rise significantly, the value of zero-coupon bonds may decrease, resulting in a capital loss if sold before maturity.
Conclusion
Zero-coupon bonds can be a valuable addition to an investment portfolio, providing a predictable return at maturity. However, investors should carefully consider the risks associated with these bonds, especially the lack of income payments and the impact of interest rate fluctuations. By weighing the advantages and risks, investors can determine if zero-coupon bonds align with their financial goals and risk tolerance.
Zero-coupon Examples
- John purchased a zero-coupon bond that pays off $1000 at maturity.
- Sarah received a zero-coupon certificate as a gift, entitling her to a free meal at her favorite restaurant.
- The financial advisor recommended investing in zero-coupon bonds due to their attractive yields.
- Mike decided to redeem his zero-coupon voucher for a discounted gym membership.
- Emily used a zero-coupon code to get a 50% discount on her online shopping purchase.
- The company issued zero-coupon securities to raise capital for its expansion plans.
- Tom bought a zero-coupon Treasury bill with a maturity of 10 years.
- Jennifer found a zero-coupon coupon in the newspaper, saving her money on her next grocery purchase.
- Mark's investment portfolio includes zero-coupon bonds for diversification.
- Lisa received a zero-coupon gift card for her favorite clothing store, allowing her to shop for free.