On this page we define a non zero coupon bond and provide a formula for valuation of such bonds along with an example calculation to find valuation of non zero coupon bonds.
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How do you define a non zero coupon bond
Non Zero Coupon Bonds have finite maturity , thus we must consider not only the interest stream but also the terminal value or maturity value (face value) in valuing the bond.
What is the formula for Valuation of non zero coupon bond?
The valuation equation for such a bond that pays interest at the end of each year is
Calculation of Valuation of non zero coupon bond
We might want to determine the value of a $1000 par value bond with a 10% coupon and 10 years to maturity. The coupon rate corresponds to the interest payments of $100 a year. If our required rate of return on the bond is 14%, then
