Zero Coupon Bonds
Zero coupon bond is a type of bond which do not make the period coupon payments. This bond is sold at a discount, that is, it can be bought at a price lower than its face value with face value to be paid at the time of maturity. Examples of zero-coupon bonds include U.S. savings bonds, U.S. Treasury bills, long-term zero-coupon bonds etc.
Price of a zero coupon bond can be calculated by using the below formula:
where, P= Price of the zero coupon bond
M = Maturity Value
r = Investor's required annual yield
n = Number of years until maturity
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