Zero Interest Bonds Debentures Homework Help

Zero Interest Bonds Debentures

Also known as zero coupon bonds/debentures, ZIBs do not carry and explicit/coupon rate of interest. They are sold at a discount from their maturity value. The difference between the face value of the bond and the acquisition cost is the gain/ return to the investors. The implicit rate of return/interest on such bonds can he corn outed by Equation 19.1.

Acquisition price – Maturity (face) value/( 1 + i)

Where       i = rate of interest
n = maturity period (years).

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