A Zero Coupon Bond makes no periodic interest payment, but instead it usually offers discounts on its face value. The earnings accumulate until maturity, when they are redeemed at face value on a specified maturity date.
- Discounted price at face value
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Illustrative Example of Zero Coupon bond offered at a discount rate
Mr. Chan bought a zero coupon bond of face value of US$100,000 at a discount value of 20%. This bond will mature on February 10, 2028. The required principal for Mr. Chan will be:
|Principal to Invest US$100,000 x 20% = US$20,000|
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