Zero-Coupon Bond

A debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.

Also known as an "accrual bond".

Investopedia Says:
Some zero-coupon bonds are issued as such, while others are bonds that have been stripped of their coupons by a financial institution and then repackaged as zero-coupon bonds. Because they offer the entire payment at maturity, zero-coupon bonds tend to fluctuate in price much more than coupon bonds.

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Bonds that do not make periodic interest payments, but instead accrue interest until the bond matures. Also known as zero-coupon bonds. See also Zero-Coupon Securities.

Security that makes no periodic interest payments but instead is sold at a deep discount from its Face Value. The buyer of such a bond receives the rate of return by the gradual Appreciation of the security, which is redeemable at face value on a specified maturity date. See also Certificate of Accrual on Treasury Securities (CATS); Coupon Bond; Deep Discount Bond; Original Issue Discount.

Long-term, deferred interest Collaterized Mortgage Obligation (CMO) bond, also called a Z-Bond, that pays no interest until all prior bonds have been retired. An accrual bond is similar to a Zero-Coupon Bond except that it has an explicit coupon rate and pays both principal and coupon interests. See also Strip; Stripped Mortgage Backed Securities.

Bond, sold at a deep discount, that accrues interest semiannually. Both the principal and the accumulated interest are paid at maturity. Although a fixed rate is implicit in the discount and the specific maturity, they are not fixed income securities in the traditional sense because they provide for no periodic income. Although the interest on the bond is paid at maturity, accrued interest, though not received, is taxable yearly as ordinary income.

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