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Zero-coupon bond
       
 
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Zero-coupon bond

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Zero-coupon bond
A Bond which pays no coupons, is sold at a deep Discount to its face value, and matures at its face value.
    
A zero-Coupon Bond has the important advantage of being free of Reinvestment risk, though the downside is that there is no opportunity to enjoy the effects of a rise in market Interest rates.
    
A Bond that makes no periodic Interest payments, but rather sells at a deep Discount from its face value.

Also, such bonds tend to be very sensitive to changes in Interest rates, since there are no Coupon payments to reduce the impact of Interest rate changes. In addition, markets for zero-Coupon bonds are relatively illiquid. Under U.S. Tax law, the imputed Interest on a zero-Coupon Bond is taxable as it accrues, even though there is no Cash flow.
Posted by  Privatebanking.com
 
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