Zero Coupon Bond
A bond that pays no interest
while the investor holds it. It is sold originally at a substantial discount
from its eventual maturity value, paying the investor its full face value when
it comes due, with the difference between what he paid initially and what he
finally collected representing the interest he would have received over the
years it was held.
Zero coupon yield curve
A yield curve of zero coupon
bonds. Market practice is often to derive this curve theoretically from the par
yield curve. Frequently used to derive discount factors. Also known as spot
yield curve.
