Non zero coupon bond
Retrieved from " p?title Zero - Coupon ". Income must be reported even though it is not received until maturity or the strips are sold. Many corporate and government bonds are publicly traded on exchanges, while others are traded only over-the-counter (OTC). The bondholder would be indifferent to purchasing the bond or saving the same money at the prevailing interest rate. That said, zero-coupon bonds carry various types of risk. The actual market price of a bond depends on a number of factors including the credit quality of the issuer, the length of time until expiration, and the coupon rate compared to the general interest rate environment at the time. See also 31 CFR 356.31 for rules relating to stripping and reconstituting Treasury securities.
Federal agencies, municipalities, financial institutions and corporations issue zero-coupon bonds. Zeros, as they are sometimes called, are bonds that pay no coupon or interest payment. The indebted entity (issuer) issues a bond that contractually states the interest rate that will be paid and the time at which the loaned funds ( bond principal ) must be returned ( maturity date ). On the other hand, if interest rates rise to 6, the 5 coupon is no longer attractive and the bond price will decrease, selling at a discount until it's effective rate. Also, zeros may not keep pace with inflation.
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