Examples of Zero coupon bonds in the following topics:
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- A zero-coupon bond is a bond with no coupon payments, bought at a price lower than its face value, with the face value repaid at the time of maturity.
- Examples of zero-coupon bonds include U.S.
- Treasury bills, U.S. savings bonds, and long-term zero-coupon bonds.
- This creates a supply of new zero coupon bonds.
- Zero coupon bonds may be long- or short-term investments.
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- Not all bonds have coupons.
- Zero-coupon bonds are those that pay no coupons and thus have a coupon rate of 0%.
- Normally, to compensate the bondholder for the time value of money, the price of a zero-coupon bond will always be less than its face value on any date before the maturity date.
- An example of zero coupon bonds is Series E savings bonds issued by the U.S. government.
- A variation are stepped-coupon bonds, with a coupon that increases during the life of the bond.
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- Fixed rate bonds have a coupon that remains constant throughout the life of the bond.
- A variation is a stepped-coupon bonds, whose coupon increases during the life of the bond.
- Zero-coupon bonds pay no regular interest.
- Zero-coupon bonds may be created from fixed rate bonds by a financial institution separating ("stripping off") the coupons from the principal.
- In other words, the separated coupons and the final principal payment of the bond may be traded separately .
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- For example, falling interest rates may prevent bond coupon payments from earning the same rate of return as the original bond.
- Reinvestment risk affects the yield-to-maturity of a bond, which is calculated on the premise that all future coupon payments will be reinvested at the interest rate in effect when the bond was first purchased.
- Maturity of the bond - The longer the maturity of the bond, the higher the likelihood that interest rates will be lower than they were at the time of the bond purchase.
- Interest rate on the bond - The higher the interest rate, the bigger the coupon payments that have to be reinvested, and, consequently, the reinvestment risk.
- Zero coupon bonds are the only fixed-income instruments to have no reinvestment risk, since they have no interim coupon payments.
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- In finance, a bond is an instrument of indebtedness of the bond issuer to the holders.
- It is a debt security under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon).
- Most individuals who want to own bonds do so through bond funds.
- There are also a variety of bonds to fit different needs of investors, including fixed rated bonds, floating rate bonds, zero coupon bonds, convertible bonds, and inflation linked bonds.
- It is a debt security under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon).
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- If the yield to maturity for a bond is less than the bond's coupon rate, then the (clean) market value of the bond is greater than the par value (and vice versa).
- If a bond's coupon rate is less than its YTM, then the bond is selling at a discount.
- If a bond's coupon rate is more than its YTM, then the bond is selling at a premium.
- If a bond's coupon rate is equal to its YTM, then the bond is selling at par.
- Consider a 30-year, zero-coupon bond with a face value of $100.
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- Floating rate bonds are bonds that have a variable coupon equal to a money market reference rate (e.g., LIBOR), plus a quoted spread.
- Floating rate bonds (FRBs) are bonds that have a variable coupon, equal to a money market reference rate, like LIBOR or federal funds rate, plus a quoted spread (i.e., quoted margin).
- At the beginning of each coupon period, the coupon is calculated by taking the fixing of the reference rate for that day and adding the spread.
- There are many variations of floating-rate bonds.
- A FRB has a duration close to zero, and its price shows very low sensitivity to changes in market rates.
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- Payment frequency can be annual, semi annual, quarterly, or monthly; the more frequently a bond makes coupon payments, the higher the bond price.
- Bond prices is the present value of all coupon payments and the face value paid at maturity.
- In other words, bond price is the sum of the present value of face value paid back at maturity and the present value of an annuity of coupon payments.
- To put it differently, the more frequent a bond makes coupon payments, the higher the bond price.
- Bond price is the present value of all coupon payments and the face value paid at maturity.
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- A bond selling at par has a coupon rate such that the bond is worth an amount equivalent to its original issue value or its value upon redemption at maturity.
- A typical bond makes coupon payments at fixed intervals during the life of it and a final repayment of par value at maturity.
- Together with coupon payments, the par value at maturity is discounted back to the time of purchase to calculate the bond price.
- The coupon payments of such bonds are also accordingly adjusted even though the coupon interest rate is unchanged.
- Bond price is the present value of coupon payments and the par value at maturity.
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- Yield to maturity, rather, is simply the discount rate at which the sum of all future cash flows from the bond (coupons and principal) is equal to the price of the bond.
- If the yield to maturity for a bond is less than the bond's coupon rate, then the (clean) market value of the bond is greater than the par value (and vice versa).
- If a bond's coupon rate is less than its YTM, then the bond is selling at a discount.
- If a bond's coupon rate is more than its YTM, then the bond is selling at a premium.
- If a bond's coupon rate is equal to its YTM, then the bond is selling at par.