A
bond that pays no
interest. It is
sold at a
discount from
par and
matures at par. These are fairly
illiquid investments because they do not benefit from changes in
interest rates. However, they tend to be low-
risk. Zero-coupon bonds fluctuate in
price, sometimes dramatically, with changes in interest rates. Sometimes zero-coupon bonds are issued as such; other times they are bonds stripped of their coupons by a financial institution and resold as zero-coupon bonds. A zero-coupon bond is less formally known as a zero.