zerobond

Vocabulary Word

Definition

A 'zero-bond' is a debt security that doesn't pay interest (coupon) during its term but is traded at a deep discount, rendering profit at maturity when it pays its face value. It's similar to keeping money in a box, and when you open it after several years, it has increased in value.

Examples in Different Contexts

In financial technology, managing 'zero bonds' requires precise calculations of future value. A fintech developer might assert, 'Our app’s algorithm accurately calculates the maturity value of zero bonds, aiding investors in making informed decisions on these interest-free instruments.'

Practice Scenarios

Business

Scenario:

Raising capital for the next product line is a priority. What are our options, considering we want to minimize the cost of capital?

Response:

One cost-effective option could be to issue zero-coupon bonds. This approach will keep our interest payments low.

Accounting

Scenario:

With future pension liabilities looming, we need a firm plan to assure our employees. Could you suggest a concrete finance strategy?

Response:

I would recommend investing in zero-coupon bonds to create a reliable source of funds for our future pension payments.