SmartMoney University: Glossary: Z

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z | #

Zero-coupon bond
A bond sold at a deep discount to its face value. It doesn't pay periodic interest payments to investors; instead, investors receive their return on investment at maturity. The return is equal to the difference between the bond's price at issuance and its face value. See "Types of Bonds."
BACK TO TOP

Zeros
Zero-coupon bonds (the Treasury's version of zeros are known as Strips) don't pay out interest annually. Rather, they are purchased at a discount and, at maturity, all compound interest is paid and the bondholder collects the face value of the bond. However, since interest is technically earned and compounded semiannually, holders of zeros are obliged to pay taxes each year on the interest as it accrues. Many investors like to time the maturity of their zero-coupon bonds to coincide with certain anticipated expenses, such as college tuition.
BACK TO TOP

FAQs | Glossary | Contact | Search | SmartMoney.com

The content of this site is provided by SmartMoney.com for informational purposes only and in no way reflects the opinions of Datek Online. Datek offers no investment, tax or legal advice and nothing in this link should be construed as such.
SmartMoney.com © 2009 SmartMoney. SmartMoney is a joint publishing venture of Dow Jones & Company, Inc. and
Hearst Communications, Inc. All Rights Reserved. Please read our terms and conditions and our privacy statement.