Zero coupon obligatie: What is a zero coupon bond? (zero coupon bond) This type of bond has a special feature. No coupons will be distributed during the life of the bond. So you will not receive any interest during the term of a zero coupon bond. On the end date, you will be paid a higher sum than you paid.
This is usually a pre-determined amount that you receive around the end date. For example, you pay 800 euros for this type of bond and the nominal value of your bond is 1200 euros. You will then be paid the total nominal value on the end date. The advantage of zero coupon bonds is of course that you know in advance how much money you will receive on which date.
Some zero coupon bonds are indexed to inflation. These can therefore perfectly serve as a protection against high inflation. The disadvantage of zero coupon bonds is that you do not receive interim payments. You actually lose some purchasing power. If you had reinvested the amounts that you received in the interim, you would have already received interest on interest.
You can actually buy these types of bonds in the short and long term. If you are buying a long-term zero coupon bond (10-20 years), it is best to buy one that is indexed to inflation. Inflation can take a big bite out of your assets in the long run. Bonds use ratings to express the “amount” of risk. There are also other things you should know if you want to buy bonds. Read more about bonds here.
Zero coupon bonds can be created by splitting up a regular bond (a bond with coupons): the principal (the mantle) and each of the coupons then become separately traded zero coupon bonds. This division is called Separate Trading of Registered Interest and Principal Securities (STRIPS); any bond created from the mantle or coupons is called a strip. As usual, for zero coupon bonds, both strips are sold at a discount.
The owner of the separated interest coupons can collect the interest every year during the term of the original bond. Financial institutions may aggregate such coupons to achieve a final value, equal to the principal amount of the original bond, annually, for the residual maturity of the original bond.
Since the properties of zero coupon bonds yield simple formulas and because coupon bonds can be reduced to zero coupon bonds in the manner just described, they are a popular subject of study for the financial economy.