A zero-coupon bond is a fixed-income security that does not pay periodic interest but is issued at a discount to its face value. Essentially, investors purchase these bonds at a lower price and receive the full face value at maturity.
The absence of periodic interest payments distinguishes it from traditional bonds.
The return is derived from the difference between the purchase price and the face value.
Zero-coupon bonds are valued for their predictable future cash flow and are often used for long-term financial planning and investment strategies.