Bonds that are bought at a deep discount and pay no rate of interest are known as zero coupon bonds. These securities will mature at a larger face value than the price it was bought at.
These investments offer growth within a bond, but they do not offer any current income. These can be found in funds and annuities, since many of those assets are long term.
Taxation
Tax is normally paid each year on the earned interest from zero coupon bonds. This is also known as phantom income, so there is no taxation advantage to them unless they are bought into an IRA or other tax deferred account.
Treasury STRIPS are also Zero coupons. Also municipalities and corporations offer them.
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2006 American Investment Training, Inc.
