Zero coupon bond calculation is the process of determining the present value of a bond that pays no periodic interest payments (coupons), using a financial calculator or spreadsheet program like Microsoft Excel. This method is crucial for investors looking to evaluate the value of these types of bonds, which offer a single payment at maturity.
Understanding how to calculate zero coupon bonds in Excel holds significant relevance in financial markets. Zero coupon bonds are often used as building blocks for more complex financial instruments and serve as benchmarks for interest rate expectations. Historically, the development of the Black-Scholes model marked a key advancement in the pricing of zero coupon bonds, revolutionizing fixed income markets.