What are the municipal bonds of zero coupon?
Municipal bonds Zero-Coupon are bonds that do not provide regular interest payments. Most other municipal bonds will provide interest payments on a half -year basis. However, bonds with zero coupon do not pay anything for the investment until maturity.
urban bonds are an investment option that allows the investor to invest in the city, state or federal governments. The investor buys a bond that will achieve maturity in the future at a certain time. During the maturity period, the government could use money for projects such as school buildings or re -management of roadways, or could use funds for operating costs. Urban bonds usually last for 10 years before they ripen. First, by purchasing municipal bonds from the local administration, the investor could see the impact of improvement from the investment if he lives in the community where the bond was purchased. Second, municipal bonds often require a small leading investment. For example, a bond that nominal is ratedTu 10,000 USD (USD) at maturity can be purchased for only $ 3,000-4,000 USD. Of course, the interest rate at the time of purchase will affect the price.
The third, municipal bonds are generally an investment in low Although the interest on return may not be as high as in other investments, the risk is also lower, because the government rarely fails on its debts. Finally, interest income generated from municipal bonds is often not taxed.
Municipal bonds Zero-Coupon differ from other municipal bonds in the way the interest is paid to the investor. For most municipal bonds, interest is calculated semi -annual or annually and paid off to the investor, while the bond holder of zero coupon does not receive anything about the investment until the bond reaches the maturity.
The amount of interest received by investors received on the city bonds Zero-Coupon is always known in advance. What separates the basic municipal bonds from the municipalH bonds with zero number are when the interest is paid. The bond holder of $ 10,000, who paid $ 3,000 for a bond, will always receive $ 7,000 in interest. If the bond is the basic city bond, this interest will be paid in half -year or annual payments throughout the bond life, but if the bond is a city bond with zero coupon, it will receive all this interest rate.