How to calculate interest on a zero coupon bond

This has been a guide to what is Zero Coupon Bond. Let's conquer your financial goals together Filed Under: Compare Popular Online Brokers. Essentially, all you have to do is apply the rate of the return to the bond's imputed balance as of the year in question to come up with that year's imputed interest.

Sorry, that how to calculate interest on a zero coupon bond variant

  • These payments are known as coupons, because many years ago bonds would actually come with coupons that you could mail in to prompt the payment of interest.
  • Not Helpful 2 Helpful 3. Take the sum calculated in Step 1 above and raise it to the power of the remaining time period.

The debt balance is raised gradually to the face value and interest of 6 percent is reported each year over the entire period. They are sold at a discount to provide interest to the buyer. The difference between the discounted price and the eventual maturity value represents the interest the investor will earn over the life of the bond, and both for tax purposes and to determine your return, you need to know how to calculate imputed interest on such securities.

How to calculate interest on a zero coupon bond
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