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 issued at a discount and redeemed at face value.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

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

Explanation: The interest is the difference between what you pay now and what you receive at maturity.

3. Importance of Interest Calculation

Details: Calculating the interest helps investors understand their potential return and compare different zero coupon bond investment opportunities.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Why invest in zero coupon bonds?
A: They provide a known return at a specific future date and are often purchased for future financial needs like education expenses.

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 zero coupon bonds taxable?
A: In many jurisdictions, the imputed interest may be taxable annually even though no cash payment is received (phantom income).

Q4: What affects the price of zero coupon bonds?
A: Market interest rates, time to maturity, and credit quality of the issuer are the main factors.

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