ACCRETED VALUE

Unlike a current interest bond which pays out interest on a regular basis, a zero coupon bond compounds it’s value as it approaches maturity, when its accreted value will be par ($100.00), effectively paying all of the interest earned, at maturity date. The rate at which it increases is a function of it’s interest rate. The accreted value is the compounded value for a zero coupon bond for a particular day. The accreted value may or may not be the same as the market value. On taxable zero coupon bonds, taxes may be due each year on that year’s accretion, rather than when the bonds mature. See also Par and zero Coupon Bond.