Zero-Coupon

Description: A Zero Coupon is a financial instrument that does not pay periodic interest but is issued at a price lower than its nominal value. This type of bond becomes an attractive option for investors looking for a long-term investment, as its yield is obtained through the difference between the purchase price and the nominal value received at maturity. Zero Coupons are particularly popular among investors who want to plan their finances for the future, such as for children’s education or retirement, as they offer certainty regarding the amount to be received at the end of the investment period. Additionally, these instruments are less sensitive to interest rate fluctuations compared to traditional bonds, making them less volatile. In summary, Zero Coupons are a financial tool that allows investors to accumulate value over time without the need to receive interest payments during the life of the bond.

History: Zero coupon bonds emerged in the 1970s when the bond market began to diversify and investors sought new forms of investment. In 1977, the American investment firm First Boston pioneered the issuance of zero coupon bonds, allowing investors to access this type of instrument. Since then, their popularity has grown, especially among investors looking for a long-term savings method.

Uses: Zero coupon bonds are primarily used as a long-term investment tool. They are ideal for those looking to save for specific goals, such as college education or retirement. They are also used by institutions and investment funds to manage portfolios and diversify risks. Additionally, they can be an attractive option for investors looking to minimize tax burdens, as interest is not taxed until payment is received at maturity.

Examples: An example of a zero coupon bond is the 10-year U.S. Treasury bond, which is issued at a price below its nominal value and is paid in full at maturity. Another example is bonds issued by companies seeking to finance long-term projects without the need to make periodic interest payments.

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