Pros And Cons Of Zero Coupon-Bearing Bonds

Though coupon-bearing bonds have more reinvestment risk than zero coupons, zero coupon bonds are more volatile and present bigger interest rate (price) risk. Zero coupon bonds do not pay holders interest payments as typical bonds do, and zero coupons pay coupons over the life of the maturity but only pay face value of the bond as of the maturity date. Overall, zero coupon bonds will gain on the difference between what was paid for the bond versus what will be received at maturity and traditional bonds will gain from the expected distribution of