Zero-coupon bond
A zero-coupon bond pays no periodic interest; it is issued at a discount and repays only face value at maturity, so its entire return comes from the gap between purchase price and face value.
What it is
See it move
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A zero-coupon bond pays no interest along the way. Priced today at €613.91, a ten-year bond with a €1,000 face value and a 5 percent yield earns its entire €386.09 return silently, through price appreciation alone, until it matures and repays the full €1,000 face value.
The formula
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Variables
- Price today (€)
- Face value (€)
- Yield to maturity per period (%)
- Number of periods to maturity (periods)
Discounts the single face-value payment at maturity back to today's price, using the market yield to maturity.
Check yourself
PracticeCORE
A zero-coupon bond has a face value of €5,000, matures in 8 years, and has a market yield of 6% per year. What is its price today?
Select an answer to check your understanding.