Zero-Coupon Bond

A bond that pays no periodic interest and instead is issued at a deep discount to its face value, with the investor's return coming entirely from the difference between the purchase price and the par value received at maturity. For example, a zero-coupon bond with a $1,000 face value might be purchased for $600 and mature at full value in ten years. U.S. Treasury STRIPS are the most common zero-coupon securities, and they are popular in retirement planning because the investor knows exactly what they will receive at a specific future date.