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 investment portfolios, 'zero bonds' are utilized for guaranteed future value. An investment advisor might say, 'Including zero bonds in your portfolio can secure a known amount at maturity, providing a reliable investment option with minimal risk.'

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.