a zero coupon bond, as the name implies, is one that has no coupon payments, that is, it does not disperse regular interest payments. instead, the investor buys the bond ? discount price, that is, at a price lower than its face value. when the bond matures, the investor receives the principal amount or face value. other zero coupon bonds, known as strips, are derived from traditional interest paying bonds. an investment bank buys the bond but sells the interest payments separate from the note itself. the strip bond is sold at a discount but it no longer gives the investor a regular interest payment. say ? plans to retire in 20 years and wants to study investment to support her later years. she decides to buy $10,000 worth of u.s. savings bond that matures in 20 years. if this bond ? a $10,000 face value ? priced at a $5,000 discount, the good news for ? is that she only has to pay $5,000 to receive this bond now and she is guaranteed to ? for principal of $10,000 at maturity. one of the downsides to zero coupon bonds is that although no payments are made to ? until the bond matures, she may still have to pay income tax on the assigned interest that ? each year. perhaps the biggest drawback to zero coupon bonds is that with other debt instruments and ? company can reinvest their modest interest payments into higher yielding bonds. ? won't have this option. that doesn't mean her money is completely locked up, however. she can always sell the bond on the secondary market before it matures. if she has held the note for a while, chances are she'll still make a profit. because prices tend to fluctuate quickly, bond holders should do their research before making a quick decision to buy or sell.
- strip bond・・・ストリップス債
- savings bond・・・貯蓄債券