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Trusts & Estates Glossary: Z

ZERO COUPON BOND:
A type of bond, either taxable or tax-exempt, sold at a deep discount from face value which pays no current interest (as opposed to a coupon bond), but which pays face value upon maturity. A key feature of zero coupon bonds is that they provide the holder with a set yield throughout the term of the bond. Each year, an amount of interest is imputed to the holder. If the zero coupon bond is taxable, then income tax will be owed on the imputed interest.