What is a Zero coupon bond?
A “zero coupon bond” is an investment bond purchased at a fraction of its face value, to be redeemed at maturity for its face value. For example, if in July 2000 you could have purchased a 10-year, $1,000 zero coupon bond yielding 8 percent interest, the bond would have been purchased for about $456 and would be redeemed in July 2010 for its $1,000 face value (the interest, usually compounded semiannually, would have accumulated within the bond during the 10 year period).
