A zero-coupon bond is a type of bond that does not pay periodic interest payments to the bondholder, known as a coupon. Instead, the bond is issued at a discount to its face value, and the bondholder receives the face value of the bond at the time of maturity. This means that the bondholder effectively receives the interest payments when the bond matures, rather than receiving periodic payments. Zero-coupon bonds are typically long-term investments, with maturities ranging from a few years to several decades. Because they do not pay periodic interest payments, zero-coupon bonds tend to be less expensive than other types of bonds, making them an attractive option for investors looking to generate long-term returns on their investments.
