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A zero-coupon bond (also discount bond or deep discount bond) is a bond in which the face value is repaid at the time of maturity. Unlike regular bonds, it does not make periodic interest payments or have so-called coupons, hence the term zero-coupon bond.
A zero-coupon bond is a type of bond that does not pay periodic interest — or coupon payments — like traditional bonds. Instead, they are issued at a steep discount and provide a return to...
In finance, bootstrapping is a method for constructing a (zero-coupon) fixed-income yield curve from the prices of a set of coupon-bearing products, e.g. bonds and swaps.
Treasury bills (T-bills) are zero-coupon bonds that mature in one year or less. They are bought at a discount of the par value and, instead of paying a coupon interest, are eventually redeemed at that par value to create a positive yield to maturity.
Other ETFs that track long-term zero-coupon Treasuries, such as the Pimco 25 Year Zero Coupon U.S. Treasury Index ETF (NYSE:ZROZ), have seen even higher increases in recent sessions, surging as ...
Modified duration is a useful measure to compare interest rate sensitivity across the three. The zero-coupon bond will have the highest sensitivity, changing at a rate of 9.76% per 100bp change in yield.
The price sensitivity to parallel changes in the term structure of interest rates is highest with a zero-coupon bond and lowest with an amortizing bond (where the payments are front-loaded).
The Z-spread, ZSPRD, zero-volatility spread, or yield curve spread of a bond is the parallel shift or spread over the zero-coupon Treasury yield curve required for discounting a predetermined cash flow schedule to arrive at its present market price.
Consider a 30-year zero-coupon bond with a face value of $100. If the bond is priced at an annual YTM of 10%, it will cost $5.73 today (the present value of this cash flow, 100/(1.1) 30 = 5.73). Over the coming 30 years, the price will advance to $100, and the annualized return will be 10%.
Solving for yields: The discount factor formula for period (0, t) expressed in years, and rate for this period being , the forward rate can be expressed in terms of discount factors: is the forward rate between time and time , is the zero-coupon yield for the time period , ( k = 1,2).