Calculating zero coupon bond prices is a fundamental skill in finance. A zero-coupon bond is a type of fixed-income security that does not pay periodic interest payments (coupons) but instead is sold at a deep discount to its face value. Investors make a profit when the bond matures and is redeemed at full value.
Valuing zero-coupon bonds requires careful consideration of factors such as the bond’s maturity date, the prevailing interest rates, and the bond’s face value. By accurately calculating the present value of the bond’s future cash flows, investors can make informed decisions about whether to buy, sell, or hold zero-coupon bonds.