Doubts
VARUN (Student) (52 Points)
02 July 2014
what is the difference between deep discount bonds and zero coupon bonds..?
3 Replies
Siddharth
(Article Assistant)
(111 Points)
Replied 02 July 2014
both are same but the names are different. both are issued at discount & matured at FV. & the difference is interest earned by you
JIBIN THOMAS BABU
(CA FINAL STUDENT)
(147 Points)
Replied 02 July 2014
Deep Discount Bond is technically called a Zero Coupon Bond.
A zero-coupon/deep discount bond is a debt security with no coupon (zero-coupon) or substantially lower coupon than current interest rates
with cumulative option
The difference between a zero-coupon bond and a regular bond is that a zero-coupon bond does not pay coupons, or interest payments, to the bondholder while a typical bond does make these interest payments. The holder of a zero-coupon bond only receives the face value of the bond at maturity.
Zero-coupon bonds are purchased at a large discount, known as deep discount, to the face value of the bond. A coupon-paying bond will initially trade near the price of its face value. Zero-coupon bondholders gain on the difference between what they pay for the bond and the amount they will receive at maturity.
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