ZERO'S

ZERO COUPON BOND
A bond which pays all interest at maturity. Zero’s are sold at a discount to their face value (par). The difference between the purchase price and the maturity value is the interest earned on the bond. (If a zero is purchased at a discount to its compounding yield, there may be a taxable capital gain.) On taxable zero coupon bonds, taxes may be due each year on that year’s accretion, rather than when the bonds mature. See also Accreted Value, Current Interest Bond, Discount Bond and Market Discount and Par.