Zero-Coupon Bond



Zero-Coupon Bonds

These bonds pay the Investor the entire payment at maturity. In order to get the yield, they are traded below face value. [1] Investors earn return from the compounded interest all paid at maturity, plus the difference between the cost of the bond and its face value. [2] Zero coupon bonds allow an issuer to avoid or delay the need to generate cash to meet current interest payments and, as a result, may involve greater credit risk than bonds that pay interest currently or in cash. [1] Some bonds were issued with coupons on them that holders redeemed for interest. Zero-Coupon Bonds also known as accrual bonds, do not have any interest paying coupons attached. Examples of zero-coupon bonds include U.S. Treasury bills, U.S. savings bonds, and long-term zero-coupon bonds.


  1. Morgan Stanley China A Share Fund, Inc. Prospectus August 12, 2010 pg24
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