Zero-Coupon Bond

Business / Taxes / Zero-Coupon Bond: Zero-coupon bonds, sometimes known as zeros, are issued at a deep discount to par value and pay no interest during their term. At maturity, the bondholder receives par value, which includes the interest that has accrued since issue. For example, you may purchase a zero-coupon bond with a six-year term for $13,500, and collect $20,000 at maturity. One advantage of zeros is that you can invest relatively smaller amounts and choose maturity dates to coincide with times you know you'll need the money — for example, when you expect college tuition bills to come due. One drawback of zeros, however, is that income taxes are due annually on the interest that accrues, even though you don't receive the actual payment until the bond matures. The exception occurs if you buy tax-exempt municipal zeros, on which no tax is due either during the term or at maturity. Another drawback is that zero coupon bonds are volatile in the secondary market, so if you have to sell before maturity, you might have a loss. These bonds get their name — zero coupon — from the fact that coupon means interest in bond terminology, and there's no periodic interest.

Other Words for Bond

Bond Verb Synonyms: cement, bind, hold together, stick, cohere
Bond Noun Synonyms: tie(s), shackles, chains, fetters, manacles, handcuffs, trammels, thongs, cord(s), rope(s), restraint(s), constraint(s), check(s), control(s), rein(s)

Pure Discount Bond

Business / Finance / Pure Discount Bond: A bond that will make only one payment of principal and interest. Also called a zero-coupon bond or a single-payment bond. MORE

Deep Discount Bond

Business / Taxes / Deep Discount Bond: Deep discount bonds are originally issued with a par value, or face value, of $1,000. But they decline in value by at least 20% — to a market value of $800 or less — typically because interest rat MORE

Payment-In-Kind (PIK) Bond

Business / Finance / Payment-In-Kind (PIK) Bond: A bond that gives the issuer an option (during an initial period) either to make coupon payments in cash or in the form of additional bonds. MORE