What are Zero Coupon Bonds ????
2 Replies
CA Trinath Galla
(student)
(3130 Points)
Replied 29 November 2008
hey they are the bonds issued by Infrastructural Companies for their funds or what ever it may be.
n the interest paid by them on that bonds is exempt from tax
Jeet Biswas
(ACMA (in Service))
(5073 Points)
Replied 29 November 2008
A bond which pays no coupons, i.e it doesnt carry any interest. it's sold at a deep discount to its face value, and matures at its face value. Thus, the difference between the discounted value & the maturity price- represents the interest earned by the investor.
The downside in these bonds is that there is no opportunity to enjoy the effects of a rise in market interest rates.
Also, such bonds tend to be very sensitive to changes in interest rates, since there are no coupon payments to reduce the impact of interest rate changes...
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