| Zero-coupon
Bond |
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A
corporate or municipal debt security traded at a deep discount from
face value. It is traded at a deep discount because the bond pays
no interest. The profit is realized when the bond is redeemed at maturity
for its full face value. It may be issued at a discount, or it may
be stripped of its coupons by a bank and then repackaged as a zero
coupon bond.
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Because these bonds off the entire payment at maturity they tend to fluctuate much more in price than a coupon bond. If interest rates are high, load up on long term zero-coupon bonds to get the best return.
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