What is a zero-coupon bond?

A zero-coupon bond pays no periodic interest (coupons). It is sold at a discount to its face value and redeems at par at maturity. The investor's entire return comes from the price appreciation over the holding period. US Treasury STRIPS are the most common example.

How is the price calculated?

With annual compounding: Price = Face Value / (1 + r)^n, where r is the annual discount rate and n is years to maturity. With semi-annual compounding: Price = Face Value / (1 + r/2)^(2n). The formula is a standard present-value calculation with no coupon cash flows.

What does the discount rate represent?

The discount rate is your required yield — the annual return you want to earn. A higher discount rate means a lower price. For government STRIPS, use the prevailing Treasury yield for the matching maturity. For corporate zero-coupon bonds, add a credit spread.

Why does bond price move opposite to interest rates?

When rates rise, the present value of the fixed face-value payment falls, so price drops. Zero-coupon bonds have the highest interest-rate sensitivity (duration equals maturity) because there are no intermediate coupon payments to cushion the effect.

What is the difference between annual and semi-annual compounding?

US Treasury bonds conventionally use semi-annual compounding. Semi-annual compounding applies half the annual rate twice per year, resulting in a slightly lower price than annual compounding at the same stated rate. Match the convention to the bond being analyzed.

Can I use this to find yield given a market price?

Yes. Enter the known face value and years to maturity, then adjust the discount rate until the calculated price matches the market price. That discount rate is the yield to maturity (YTM) implied by the market.

Zero Coupon Bond Price Calculator

Name: Zero Coupon Bond Price Calculator
Availability: InStock
Author: Nham Vu

Enter face value, years to maturity, and discount rate to get the current price, total return, and effective yield of a zero-coupon bond.

Bond Parameters

Face Value — amount paid at maturity

Years to Maturity

Annual Discount Rate — required yield

Compounding

Semi-annual Annual

Results

Bond Price

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Today's value

Total Return

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Dollar gain

Discount

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Below face value

Calculation Breakdown

Face Value —

Years to Maturity —

Annual Discount Rate —

Compounding Periods / Year —

Discount Factor —

Bond Price (PV) —

Dollar Return at Maturity —

Effective Annual Yield (EAY) —

Formula

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Summary

Enter face value, years to maturity, and discount rate to get the current price, total return, and effective yield of a zero-coupon bond.

How it works

Enter the bond's face value (the amount paid at maturity).
Set the years to maturity.
Enter the annual discount rate (your required yield) as a percentage.
Choose annual or semi-annual compounding to match the bond's terms.
Results update instantly: current price, dollar return, and effective annualized yield.

Use cases

Price a US Treasury STRIPS or zero-coupon Treasury bond.
Compare zero-coupon bond prices across different discount rates.
Calculate how much to invest today to receive a target lump sum at a future date.
Understand the relationship between bond price and interest rates.
Verify textbook or exam problem answers for zero-coupon bond pricing.
Estimate the implied yield on a discounted bond trading in the secondary market.

Frequently Asked Questions

Last updated: 2026-07-27 · Reviewed by Nham Vu