Definition of Zero Coupon Bond

Zero-coupon bond or pure discount bond is a bond that has no coupon payment attached to it. These bonds are matured at face value. The market value is determined by discounting the face value over the remaining time until maturity. If a bond that has a discount rate of 15% and has 7 years till maturity then the market value of a zero-coupon bond can be calculated using this formula.

This means that a bond can be purchased for $376 and will be matured in next 7 years. Until the maturity, the discount rate will unwind at a rate of 15% and at the maturity date its value will become exactly $1,000.