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Zero coupon bond


A bond that does not make any periodic coupon payments. A zero coupon bond is sold at a discount from its face value but pays the face value at maturity. For example, a zero coupon bond with a face value is determined by the discount. For the example, £909 invested in the bond is rewarded with the face value of £1000 a year later, which is an annual return of 10 per cent. See also stripped bond. Of 10 per cent. See also stripped bond.

Reference: Oxford Press Dictonary of Economics, 5th edt.