What are 'zero-coupon bonds'? Definition & meaning

What is a zero coupon bond?

A zero coupon bond is a bond that does not make interest payments.

‍

This type of bond is issued at a discount to its maturity value and is redeemed at the maturity value, generating a return for the investor.

‍

UK Treasury bills are an example of a zero coupon bond.

‍

Zero coupon bonds can be issued by governments, municipalities, and companies.

More terms

Net asset value

Mutual funds and investment trusts are priced on their net asset value (NAV).

Arithmetic Mean

The sum of a set of numbers added together and then divided by the total amount of numbers in that set.

Stock Exchange

A physical/digital place where stockbrokers and traders can buy and sell securities.

Limit order

Learn what a limit order is and how to use it to make the most of your portfolio.

Equity ETF

An exchange-traded fund that is comprised of a set of stocks.

Margin call

Learn what a margin call stands for in financial terms.

Gross Margin

The difference between a company's revenue and the cost to produce its goods/services, divided by revenue.

Maturity value

What's the maturity value of a bond?

Balance sheet

A summary of a company's finances, including its assets, liabilities and shareholder equity.

Freetrade does not provide investment advice and individual investors should make their own decisions or seek professional advice. The value of investments can go down as well as up and you may receive back less than your original investment. Freetrade is a trading name of Freetrade Limited, which is a member firm of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales (no. 09797821).

Zero coupon bond