Understanding Zero Coupon Bonds

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Understanding Zero Coupon Bonds

  1. 1. UnderstandingZero Coupon Bonds
  2. 2. Zero coupon bonds is a bondthat is issued at a discounted price and redeemed at par at the time of maturity.
  3. 3. Lets try and understandthis through an illustration.
  4. 4. Let us assume that Mr. Rahulhas invested Rs. 920/- in a zero coupon. Let us further assume that after 1 year he would receive Rs. 1000/- .
  5. 5. In the instant case Rahul pays Rs. 920/- (Discounted price) and he would receive Rs. 1000/- (Par value) after 1 year.
  6. 6. Return (yield) on the bondfor Rahul is 8.70% and can be arrived as follows (1000 – 920) / 920
  7. 7. Thus Zero Coupon Bond is nothing but a terminologyused for a bond that is issuedat a discounted price andredeemed at par on maturity.
  8. 8. Hope you have understood theConcept of Zero Coupon BondPlease give us your feedback at professor@tataamc.com
  9. 9. Disclaimer The views expressed in these lessons are for information purposes only and do not construe to be of any investment, legal or taxation advice. They are not indicative of future market trends, nor is Tata Asset Management Ltd. attempting to predict the same. Reprinting any part of this presentation will be at your own risk and Tata Asset Management Ltd. will not be liable for the consequences of any such action.Mutual Fund investments are subject to market risks, read all schemerelated documents carefully.

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