Listen to a Business English Dialogue About Zero coupon bond
Maya: Hi Abigail, have you heard about zero coupon bonds in business and finance?
Abigail: No, I haven’t. What are they?
Maya: Zero coupon bonds are bonds that are sold at a discount to their face value and do not pay periodic interest. Instead, investors earn a return by purchasing the bond at a lower price and receiving the full face value at maturity.
Abigail: Oh, so it’s like buying a bond at a discounted price and getting the full amount back later?
Maya: Exactly. Zero coupon bonds are popular for investors who want to lock in a fixed return over a specific period without the need for regular interest payments.
Abigail: Are zero coupon bonds considered low-risk investments?
Maya: While they don’t have the same interest rate risk as traditional bonds, zero coupon bonds are still subject to risks such as inflation and changes in market interest rates.
Abigail: How are zero coupon bonds taxed?
Maya: Investors typically pay taxes on the imputed interest that accrues annually, even though they don’t receive actual interest payments until maturity.
Abigail: Can you give an example of how zero coupon bonds work?
Maya: Sure. Let’s say you buy a zero coupon bond with a face value of $1,000 that matures in 10 years. You might purchase it for $700, and at the end of the 10 years, you’d receive $1,000.
Abigail: Thanks for explaining, Maya. Zero coupon bonds seem like an interesting investment option.
Maya: No problem, Abigail. They offer a unique way to earn a fixed return over a specific period without the need for regular interest payments.