Noninterest-bearing note


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Noninterest-bearing note

A note without periodic interest payment, but selling at a discount and maturing at face value. See: Zero-coupon bond.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Zero-Coupon Bond

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.
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