What is a “zero coupon bond”?
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Some bonds that do not make regular coupon payments, but instead pay all interest compounded when the bond matures, are called zero coupon bonds. These types of bonds are typically sold at a substantial discount to their face value, and all accrued interest and the principal are paid to the investor when the bond reaches maturity. It is important to note that the prices of zero coupon bonds tend to fluctuate more than their coupon-paying counterparts.