A zero-coupon bond that can be converted into the common stock of the issuing company when the stock reaches a predetermined price.
Zero-Coupon Bond
[ZEE-roh KOO-pon bond]
What is the definition of Zero-Coupon Bond?
A bond on which the holder receives only one payment at maturity, which includes both the principal and the interest accrued from issuance to maturity.
Using Zero-Coupon Bond in an Example
A zero-coupon bond is purchased at a discount to its face value, and over time it appreciates to its full face value. For example, an investor might purchase a zero-coupon bond with a face value of $1,000 for $500. After 10 years, when the bond matures, the investor receives the full $1,000, effectively doubling their investment.
Using Zero-Coupon Bond in a sentence
When considering a low-risk investment for your savings, you might look into a zero-coupon bond, which does not pay periodic interest but compounds it until maturity.
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