Another type of interest rate curve, the forward curve, is constructed using the forward rates derived from this curve.
What Is a Zero Coupon Bond?
Zero-coupon bonds are available for a limited number of maturities, so you typically construct zero curves with a combination of bootstrapping and interpolation techniques in order to build a continuous curve. Once you construct these curves, you can then use them to derive other curves such as the forward curve and to price financial instruments.
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Popular Terms. Bond that 1 pays no interest but instead is sold at a deep discount on its par-value, or 2 an interest paying bond that has been stripped of its coupon which is sold separately as a security in its own right.
Bondholder's income is determined by the difference between the bond's redemption value on maturity and its purchase price. Also called non-interest bearing Bond, zero interest bond, or zero rated bond. See also deep discount bond.
Use 'zero-coupon bond' in a Sentence The zero-coupon bond was included in our investment portfolio as we wanted to diversify our investment strategy by including many variations. I realized that a zero-coupon bond would be a good choice, so I decided to go for it and it ended up paying off. You can sometimes get a great value on a zero-coupon bond and it can be a great investment if you have the cash for it.
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