what is a zero coupon bond 
a zero coupon bond is an investment in debt that does not pay interest but instead trades at a deep discount the profit is realized at its maturity date when the bond is redeemed for its full face value a zero coupon bond is also known as an accrual bond investopedia laura porterunderstanding zero coupon bondssome bonds are issued as zero coupon instruments other bonds are transformed into zero coupon instruments after a financial institution strips them of their coupons and repackages them as zero coupon bonds because they offer payment at face value at maturity zero coupon bonds tend to fluctuate in price on the secondary market much more than coupon bonds 1for a company or a government a bond is a tool for borrowing money investors who purchase bonds are effectively acting as lenders to the issuing entity the investors earn a return in the form of coupon payments which are made semiannually or annually throughout the life of the bond 