ZERO-COUPON Meaning and
Definition
-
Zero-coupon refers to a financial instrument or security that does not provide periodic interest payments to its holder. Instead, it is sold at a discounted price from its face value and pays the holder the full face value amount at maturity. Also known as a discount bond, zero-coupon bonds or securities are characterized by their lack of coupon or interest payments throughout the life of the investment.
The principal distinction of zero-coupon bonds lies in their ability to generate profits through the discount between the purchase price and the eventual face value received at maturity. The difference between these two amounts represents the interest earned over the life of the bond, even though it is not paid out periodically. This method allows investors the opportunity to benefit from the appreciation of the bond's value over time.
Typically, zero-coupon bonds are issued by governments, corporations, or municipalities to raise capital for various projects or obligations. They are often referred to as long-term investments due to their fixed maturity dates, which can range from several months to several decades. The lack of periodic cash flow or interest payments associated with zero-coupon bonds makes them particularly suitable for investors seeking to earn a specific amount or accumulate substantial funds by a future date.
Common Misspellings for ZERO-COUPON
- xero-coupon
- sero-coupon
- aero-coupon
- zwro-coupon
- zsro-coupon
- zdro-coupon
- zrro-coupon
- z4ro-coupon
- z3ro-coupon
- zeeo-coupon
- zedo-coupon
- zefo-coupon
- zeto-coupon
- ze5o-coupon
- ze4o-coupon
- zeri-coupon
- zerk-coupon
- zerl-coupon
- zerp-coupon
- zer0-coupon
Etymology of ZERO-COUPON
The term "zero-coupon" is a combination of two words: "zero" and "coupon".
- Zero: The word "zero" originated from the Latin "nullus", meaning "none" or "no". It eventually came into use in English during the late 16th century.
- Coupon: The word "coupon" comes from the French word "couper", which means "to cut". It originally referred to a detachable portion of a bond or security certificate that could be exchanged for interest payments. The usage of "coupon" in finance and investments began in the mid-19th century.
When combined, "zero-coupon" refers to a financial instrument or security that does not pay periodic interest or dividends (no coupon payment). Instead, it is sold at a discounted price and provides the investor with a return upon maturity.
Infographic
Add the infographic to your website:
