Definition:
A zero-coupon bond is a bond that has no coupon rate (interest rate) attached to it so it pays no interest during its life. Instead, it is sold to investors at a deep discount from its face value and is redeemed at maturity for its full value.
The price of zero-coupon bonds generally fluctuate a little more than regular bonds. Also, an investor may have to pay taxes on the "phantom" interest they accrue unless you live in a state or municipality where the bond has tax-exempt status.
Also Known As: accrual bond
Examples:
XYZ Corporation issued zero-coupon bonds which won't pay any interest to its investors during their life.
