Glossary

A zero-coupon bond is a type of bond that doesn't pay regular interest (coupon) payments to its investors. 🚫💷

Instead, it's issued at a discount to its face value and redeemed at full face value when it matures. The difference between the purchase price and the face value represents the investor's return, which accumulates over the bond's life until it matures.

Example: A 5-year zero-coupon bond with a face value of £1,000 might be issued at a price of £800. At maturity, the investor would receive the full £1,000 face value, and the £200 difference is their return.

Fun fact: Zero-coupon bonds are sometimes called "pure discount bonds" or "strips," as they're essentially the stripped-down version of a regular bond, removing the periodic interest payments. They can be particularly attractive to investors who prefer a lump sum return at maturity, rather than ongoing income. 💰