A zero-coupon bond is a type of bond that does not pay periodic interest (coupons). Instead, it is sold at a deep discount to its face (par) value, and the investor receives the full face value at maturity.

Key Features:

• No periodic interest payments: Unlike regular bonds that pay interest semi-annually or annually, zero-coupon bonds pay nothing until maturity.
• Issued at a discount: You buy it for less than its face value.
• Full value at maturity: At maturity, you receive the bond's face value (e.g., $1,000).
• Implied interest: The difference between the purchase price and the maturity value represents the interest earned.

Example:

Suppose you buy a zero-coupon bond for $600 that matures in 10 years with a face value of $1,000.
You won’t receive any payments during the 10 years, but at the end, you get $1,000, earning $400 over the term.

Common Uses:

• Long-term savings goals (e.g., college tuition or retirement)
• Predictable returns without reinvestment risk
• Often used by governments or corporations