the yield to maturity on an 18-year, zero coupon bond selling for 30% of par value YTM = 6.92%
1000 FV,
18 N,
-300 PV,
CPT I/Y
YTM = 6.92%
Coupon-free Bond
Bonds with zero coupon rates do not accrue interest throughout the course of their lifetime. Instead, buyers purchase zero-coupon bonds at a significant discount to face value, which represents the sum the buyer will get when the bond "matures" or becomes due.
Zero coupon bonds typically have lengthy maturity dates; many are delayed by 10, fifteen, or more years. An investor can prepare for a long-term objective, like as paying for a child's college tuition, using these long-term maturity dates. An investor can use the substantial discount to invest a little sum of money that will rise over many years.
In the secondary markets, investors can purchase several kinds of zero coupon bonds that have been issued from various entities.
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