What is a Zero coupon bond?
Five-Year Zero Coupon \n. \nIf the 2 5 years are exactly the same with the exception of having coupons (same lender, same claims, same everything) then yes you should be ab…le to. The trick is finding the right yield curve and discounting everything back to the present value. The coupons can be treated as mini zero-coupon bonds in their own right.
Go to your local discount broker, (Schwab, Ameritrade, E*trade, Scottrade) open an account and they will cash it in or liquidate it for you. There will be a fee associated wit…h the transaction. Shop around, prices vary. If they can't (or won't) do it, have them give you the name and address of the transfer agent. You can send it to them to liquidate as well. Good luck.
\n. \nA zero coupon bond pays no interest. Thus the market price for such a bond is always LESS than the maturity (face) value. The amount by which the bond is priced below i…ts maturity value is known as the DISCOUNT. For example, a $100 zero coupon bond maturing in one year priced to yield 10% (in simple terms) would be sold to the investor for $90.91 on the date of issue. The investor would receive no payments from the borrower until maturity, at which time the investor receives the $100 face value.\n. \n There's another form of zero-coupon bond \n. \nSome brokerages will take a regular bond with coupons and "strip" it. They'll remove the coupons and sell the corpus of the bond separately from the coupons. \n. \nA zero-coupon bond that was issued as such will normally have a really long maturity date--five to ten years isn't uncommon. You buy them as long-term investments...if you've got a child who will begin college when she's 19, you might want to buy ten-year zero-coupons that mature as the child enters each year of college.
3 years zero coupon bond. face value $100 and present market value$75. What will be its Macualay Duration and Modified Duration?
The zero coupon bond is more sensitive to change in rate (inflation) because the market value is not based on a fixed coupon.
the main difference between deep discount bond and zero coupon bondis that in case of zero coupon bond no int is payable periodicallywhile in case of deep discount bond int is… payable periodically atvery lower rate say 2% per annum
if a bond has finite maturity or limited maturity then we must consider not only the interest rate stream but also the maturity value (face value). regards Sajida Gu…l
The bond sells at a discount from its face value--sometimes a BIG discount. At the date of maturity, the bond will give you the full face value.
That would depend on the specifics of the individual bond.
Zero coupon bonds are sold at a price well below face value. Thus, these bonds are appealing to the small investor because they can be bought far more cheaply than ordinary de…bt obligations. The discount is usually from 50 to 75 percent.
They are sold at discount and mature to face value over time.
They pay no 'coupon' which is the income paid periodically. You make a return by buying at a discount. As an example, if you buy a zero coupon bond for $86.26, maturing at $1…00 over 5 years, you would earn 3% p.a.
depends on the collateral supporting the bond.
Zero coupon bonds do not pay interest and are therefore sold at a steep discount to face value depending on the maturity date of the bond. Due to the time value of money, the …discount on a 30 year zero coupon bond will be much greater than on a 10 year zero coupon bond. At maturity bondholders will receive the full face value of the bond which provides bondholders a return. For example, a 30 year zero coupon bond with a face value of $1,000 and sold for $500 would return a $500 profit after 30 years. Holders of zero coupon bonds can sell the bonds at any time before maturity. If an investor bought zero coupon bonds prior to a steep drop in interest rates, the value of the zero coupon bonds would increase and could be sold at a profit.
Zero coupon bonds issued by the US Treasury are issued at adiscount to face value. An investor holding zero coupon bonds ispaid the full face value when the zero coupon bond m…atures. The difference between the purchase price and the maturity value isknow as the original issue discount which represents the interestearned on the zero coupon bond. Although a zero coupon bond does not pay annual interest, aninvestor must pay taxes each year based on the imputed receipt ofincome. Since the investor is not receiving interest paymentsduring the life of the bond, taxes would be paid on interest incomenot actually received until bond maturity. Due to the yearly taxliability on imputed interest, it makes sense for most investors tohold zero coupon bonds in a tax deferred retirement account. The interest earned on zero coupon bonds issued by the US Treasuryare exempt from state and local taxes.
Zero Coupon Municipal Bonds are special because, unlike other bonds, they have no periodic interest payments. Rather, the investor receives one payment at maturity. This payme…nt is equal to the amount invested, plus the interest earned, compounded semiannually.
The advantage of buying zero-coupon bonds is that when they reach maturity, the investor then receives the full face value of the bond. These bonds became popular in the 1980…'s even though they were first released in the 1960's.