1. What is Zero Coupon Bond Interest?

Zero coupon bond interest represents the difference between the face value (future value) and the purchase price (present value) of the bond. These bonds don't pay periodic interest but are sold at a discount and mature at face value.

2. How Does the Calculator Work?

The calculator uses the simple interest formula:

Where:

• \( FV \) — Face value (future value) of the bond
• \( PV \) — Present value (purchase price) of the bond

Explanation: The interest is simply the difference between what you receive at maturity and what you paid for the bond.

3. Importance of Interest Calculation

Details: Calculating the interest helps investors understand their potential return on investment and compare different bond options.

4. Using the Calculator

Tips: Enter the bond's face value and purchase price in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Are zero coupon bonds a good investment?
A: They can be good for known future expenses as they provide a guaranteed return, but they're sensitive to interest rate changes.

Q2: How is this different from regular bond interest?
A: Regular bonds pay periodic interest (coupons), while zero coupon bonds pay all interest at maturity as the difference between purchase price and face value.

Q3: Are taxes due on zero coupon bonds?
A: In many jurisdictions, you may owe taxes on "imputed interest" each year even though you don't receive cash payments.

Q4: What affects the present value of a zero coupon bond?
A: The time to maturity and prevailing interest rates primarily determine the purchase price (present value).

Q5: Can I sell a zero coupon bond before maturity?
A: Yes, but the price will depend on current interest rates and time remaining to maturity.