short explain Zero Coupon Bond



Posted on 01-05-2016        By leena



short explain Zero Coupon Bond:-

In such a bond, no coupons are paid. The bond is instead issued at a
discount to its face value, at which it will be redeemed. There are no
intermittent payments of interest. When such a bond is issued for a very long
tenor, the issue price is at a steep discount to the redemption value. Such a
zero coupon bond is also called a deep discount bond. The effective interest
earned by the buyer is the difference between the face value and the
discounted price at which the bond is bought. There are also instances of zero
coupon bonds being issued at par, and redeemed with interest at a premium.
The essential feature of this type of bonds is the absence of intermittent cash
flows.


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