zero-coupon
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Meaning
(of a bond or other financial security) paying no interest during its life and issued at a discount to its face value, which is paid at maturity.
Structure
Usage
The investor purchased a zero-coupon bond at a deep discount to its face value.
Zero-coupon securities are popular for long-term goals like education funding because their value compounds implicitly.
The portfolio's risk profile was altered by adding a significant holding in zero-coupon treasury strips.
Etymology
The term is a modern financial compound, combining two loanwords with distinct histories. "Zero" traces back to the Arabic concept of 'ṣifr', meaning empty, which entered European mathematics to denote the numerical concept of nothingness. "Coupon" originates from the French for a piece cut off, referring historically to a detachable certificate from a bond. When combined in the late 20th century, the phrase "zero-coupon" creates a logical and literal description for a financial instrument that carries "no" (zero) periodic "interest certificates" (coupons), instead deriving its value purely from the discount between its purchase price and its eventual redemption value.
Analysis
- zero: From Italian 'zero', via Medieval Latin 'zephirum', from Arabic 'ṣifr' (empty, cipher). Functions as a quantifier meaning "none" or "nothing". - coupon: From French 'coupon' (a piece cut off), from Old French 'couper' (to cut). Functions as a noun element referring to a detachable certificate, especially one representing an interest payment.