zero-coupon bond business definition

A bond that provides no periodic interest payments to its owner. A zero-coupon bond is issued at a fraction of its par value and increases gradually in value as it approaches maturity. Thus, an investor's income from a zero-coupon bond comes solely from appreciation in value. Zero-coupon bonds are subject to very large price fluctuations. The tax consequences of taxable issues often make zero-coupon bonds more suitable for tax-deferred accounts such as IRAs than for regular investments. Also called accrual bond, capital appreciation bond, zero. See also Separate Trading of Registered Interest and Principal of Securities.