4,009, which translates to 6 interest per year. The net result is that either purchase has essentially the same yield, or expected return. When the bond matures, the bondholder is repaid an amount equal to the face value of the bond. Zero coupon bonds are generally more sensitive to interest rate risk and, worse, you have to pay income tax see discount code on the imputed interest you are theoretically receiving throughout the life of the bond rather than at the end of the period when you actually receive. For most types of fixed income securities we purchase for our clients (for example, CDs, agency bonds and high-grade municipal bonds yield is a good approximation of the actual return they are expected to earn. During a low interest rate environment, any time you acquire older bonds that have higher bond coupons, you will actually pay more than the bond's maturity value, leading to a guaranteed loss on the principal repayment portion that, when offset by the higher bond coupon. What is a 'Zero-Coupon Bond a zero-coupon bond is a debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value. Some Bonds Are Known as "Zero Coupon" Bonds.
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The content of this publication is for general information only and is not intended to serve as specific financial, accounting or tax advice. Most zero coupon bonds trade on the major exchanges. The amount of interest over this period that will be credited to the buyer is called the accrued interest. As of September 13, the yield on the five-year Treasury note was close.5 percent. However, since the buyer will own the bond during a small fraction of the coupon period, the seller must pay him the interest that accrues during that brief period.