zero coupon bonds definition

A bond without a stated interest rate. Because no interest is paid, the bond will sell for a discount from its maturity value. Rather than receiving interest, an investor's compensation will be the difference between the discounted price at which the bond was purchased and the price the investor receives when selling the bond. If the investor holds the bond to maturity, the investor will earn the difference between its discounted cost and its maturity value. A U.S. Series EE savings bond is a form of a zero-coupon bond.