Zero coupon bond

A zero coupon bond (English zero-coupon bond , in the German language and zero-coupon bond , zero bond or zero bond called) is a special type of bond in which no current interest rates are paid. In general terms, these are bonds with fixed interest rates, high fungibility and volatility, in most cases with a severely limited possibility of termination and a predominantly long term, in which the interest and compound interest are reinvested and paid out at the end of the term. The interest over the entire term is expressed solely by the difference between the lower issue price and the higher redemption price. In other words, it is a bond without coupons .

Spread and course

The zero coupon bond is much less common than the standard coupon bond . However, it is often used to represent the guarantee part of guarantee funds or guarantee certificates. Zero coupon bonds are also created through bond stripping .

Usually, the nominal value of the zero coupon bond is paid out at the end of the term. Your issue price then has a correspondingly large discount .

In the special form of the interest collector , which deviates from this , the issue is at nominal value and the bond accumulates the interest (fixed interest or interest adjusted to the market interest rate) until the end of the term.

rating

The zero coupon bond is valued using the following formula:

${\displaystyle \mathrm {Barwert} ={\frac {\mathrm {Nennwert} }{{(1+i)}^{n}}}~~~~\Longleftrightarrow ~~~~i={\sqrt[{n\,}]{\frac {\mathrm {Nennwert} }{\mathrm {Barwert} }}}-1}$

in which

• i = applicable market interest rate for the term of the bond
• n = transit time measured in periods

If you buy a zero coupon bond z. B. for € 50 (present value) and at the end of a 10-year term you receive € 100 (nominal value), this corresponds to an annual interest rate of approx. 7%:

${\displaystyle i={\sqrt[{10\,}]{\frac {\mathrm {100} }{\mathrm {50} }}}-1\approx 0{,}07=7\,\%}$

Investment Risks

Since no repayments are made during the term of a zero-coupon bond and therefore it is not possible to reinvest the income, zero-coupon bonds are highly volatile - their price reacts more strongly to fluctuations in the market interest rate than that of coupon-bearing bonds. Zero coupon bonds therefore have a high price risk . In other words: the duration of a zero coupon bond always corresponds exactly to its remaining term and is thus higher than the duration of a coupon bond. This means that the zero coupon bond has a comparatively high level of interest rate sensitivity .

This high interest rate sensitivity can be critical if an investor has to sell a security with a long remaining term and market interest rates have risen since the purchase.

Tax treatment

In the case of investments in private assets , according to the tax law of the Federal Republic of Germany, taxation of the income is only to be made when the securities become due or prior to sale, so that the implicit reinvestment of the arithmetical gross interest income takes place. In the business assets that possibility does not exist if the taxpayer accounted for.

Other legal systems, such as the USA, tax a notional interest rate annually on zero coupon investments.

Accounting treatment according to German commercial law

Zero coupon bonds are recognized at amortized cost in accordance with German commercial law. The interest accrued on the balance sheet date increases the value as an addition. Zero coupon bonds are considered financial innovations and are therefore taxed according to the issue or market yield.

literature

• Carsten Bentlage: Business and tax law analysis of zero bonds. Deutscher Universitätsverlag, Wiesbaden 1996, ISBN 3-8244-6301-6 (At the same time: Halle-Wittenberg, University, dissertation, 1995).

Web links

Wiktionary: zero coupon bond  - explanations of meanings, word origins, synonyms, translations

Individual evidence

1. ↑ Roger Zantow, Josef Dinauer: finance of the company. The basics of modern financial management. 4th updated edition. Pearson Studium, Munich 2016, ISBN 978-3-86894-290-3 , p. 251.
2. ↑ Carsten Bentlage: Business and tax analysis of zero bonds, Gabler Edition Wissenschaft, Wiesbaden 1996, ISBN 3-8244-6301-6 , here page 11
3. ^ Beck'sches Steuerberater-Handbuch. 14, 2013/2014, ISSN  0930-2301 , Rn. 456 ff.