Overview

Zero coupon bonds are financial tools through which organizations raise capital. When bonds are issued, investors purchase those bonds, effectively acting as lenders to the issuing entity. The investors earn a return when the principal and interest are paid at maturity.

Attributes

Zero coupon bonds have the following basic attributes:

• Face value - The amount the bond will be worth at maturity. The face value of a Arbor bond is always $1. For example, say an investor purchases a bond at $0.83, and another investor buys the same bond later when it is $0.9. When the bond matures, both investors will receive the $1 face value of the bond.

• Maturity date - The date on which the bond will mature and the bond issuer will pay the bondholder the face value of the bond.