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Zero Coupon Loan



Zero Coupon Loan

A Zero Coupon Bond is an interest-bearing security in which no interest payments are made in the form of coupons. The Zero Coupon Bond is called the Zero Bond or Zero Coupon Bond in the English speaking world. A Zero Coupon Bond represents a security issued by the issuer of the security to the Security Holder. The Issuer may then raise funds and reimburse them at a later date.

A Zero Coupon Bond is an interest-bearing security in which no interest payments are made in the form of coupons. The Zero Coupon Bond is called the Zero Bond or Zero Coupon Bond in the English speaking world. A Zero Coupon Bond represents a security issued by the issuer of the security to the Security Holder. The Issuer may then raise funds and reimburse them at a later date.

The Zero Coupon Bond is also called Zero Bond in the professional circles. In principle, the zero coupon bond is comparable to every other bond. Mainly it is issued by states or large companies. The only difference to other bonds is that the Zero Coupon Bond does not pay interest in the sense. Therefore, this bond is currently very well suited for people who have already exhausted their exemption order to save taxes.

interest payment

As mentioned above, no interest is paid on the Zero Coupon Bond. The bond is issued discounted to the issuer and repaid in compound interest. This means that the interest and compound interest are deducted from the initial bond value in the sense that the bond is issued at the lower value. The longer the term of the zero bond, the lower the issue price. After the sale at maturity, the creditor will then receive 100% back. However, if the bond is returned earlier, it will be sold at the current market value. This can of course also be less than 100% or even less than the output value during runtime. This variant is called the discount bond, as described above, the interest will be settled.

Example of zero coupon bond

Bond value: 11,000, – → 100%
Issue Price: 9.500, – → 86.36%

In the case after maturity would be a profit of 13.64%

Then there is also the so-called compounding loan. In contrast to the discounted bond, interest will not be charged in advance, but the bond will be issued at the full 100%. But here too no interest is paid to the issuer. Here, a repayment amount over 100% is granted.

Example:

Bond value: 11,000, – → 100%
Return value: 12.500, – → 113.64%

As above, a gain of 13.64%

Further content on the subject can be found in the area of investment and financing .

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