Zero Coupon Bond Calculator

Zero-coupon bonds eliminate reinvestment risk, provide a guaranteed return if held to maturity, and are excellent for targeting a specific future amount (e.g., college tuition in 15 years).

STRIPS (Separate Trading of Registered Interest and Principal) are zero-coupon securities created by separating the coupon and principal components of regular Treasury bonds. They carry the full faith and credit of the US government.

Credit risk depends on the issuer (Treasury zeros are very safe; corporate zeros carry default risk). Interest rate risk is high because zeros have longer duration than coupon bonds, making them more sensitive to rate changes.

Even though you receive no cash, the IRS requires you to pay taxes on the annual increase in value (accretion) of the bond. This imputed interest is taxable income, making zeros less tax-efficient in taxable accounts.

A zero-coupon bond's duration equals its maturity (e.g., a 10-year zero has a duration of 10 years). This makes zeros the most interest-rate-sensitive bonds — a 1% rate increase causes approximately a 10% price drop for a 10-year zero.

Yes, zero-coupon bonds can be traded in the secondary market. However, the price fluctuates with interest rates — you could sell at a gain or loss depending on how rates have moved since purchase.

Both are sold at a discount, but T-bills have very short maturities (4-52 weeks) while zero-coupon bonds can extend to 30 years. T-bills are money market instruments; zeros are capital market instruments.

Yes, especially in tax-advantaged accounts. You can buy zeros maturing at your expected retirement date to guarantee a specific amount. They are also useful in bond ladders for guaranteed income.

Price = Face Value / (1 + r/n)^(n×t), where r is the annual rate, n is compounding frequency, and t is years. For a $1,000 zero at 5% for 10 years (semi-annual): Price = 1000 / (1.025)^20 = $610.27.