what is zero coupon bond ?
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Coupon is the interest you receive on the bond value, so a zero coupon bond is a bond that doesn't pay any interest to it's holder.
You would think what is the point of buying and holding it if doesn't pay interest?
Zero coupon bonds are issued at a significant discount.
Say a bond is issued with a value of 1000 Rs. A zero coupon bond would be issued with a value of 1000 but sold at 900 Rs or something.
If you hold it till maturity, you will get 1000rs eventhough you bought it for 900rs.
A very good example of this are the t-bills. Issued for 364 days at a discount of around 6% but on maturity you receive full value of the bond.