What Is a Zero-Coupon Bond?

Zero-Coupon Bond

A zero-coupon bond, also known as an accrual bond, is a debt security that does not pay interest but instead trades at a deep discount, rendering a profit at maturity, when the bond is redeemed for its full face value. 

 KEY TAKEWAYS

• A zero-coupon bond is a debt security instrument that does not pay interest. 
• Zero-coupon bonds trade at deep discounts, offering full face value (par) profits at maturity. 
• The difference between the purchase price of a zero-coupon bond and the par value indicates the investor's return.