Question

what is zero coupon bond and why zero coupon rate implied coupon rate

what is zero coupon bond and why zero coupon rate implied coupon rate

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Answer #1

Zero Coupan bond is a kind of bond that do not make any Coupan payments.In this type of bond investor receives the principal as well as interest on maturity.These type of bonds are issued at discount i.e price far lower than their face value.The interest here is refered as imputed interest.The maturity date on ZCB is usually long term.

Zero Coupan rate is refered as implied coupon rate since it doesn't pay Coupan on regular intervals but it pay implied interest at maturity.Zero Coupan doesn't mean it doesn't yield profit but it is payable at the time of maturity of bond.

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