A complete guide to understanding the yield on zero-coupon bonds and how to calculate it accurately.
A zero-coupon bond is a type of fixed-income investment that doesn’t pay periodic interest (also called coupons).
Instead, investors purchase it at a discounted price and receive the full face value at maturity.
For example, if you buy a zero-coupon bond for $750 and it matures at $1,000 after 10 years, the $250 difference represents your total profit — the bond’s yield.
This structure makes zero-coupon bonds particularly attractive for long-term investors who want predictable growth without the need for regular interest payments.
The yield of a zero-coupon bond is determined by comparing the purchase price, face value, and time to maturity.
The standard formula is:
Let’s say:
Face Value = $1,000
Purchase Price = $750
Years to Maturity = 10
Then:
That means the annualized yield is 2.9% per year over the 10-year period.
Tip: Manually calculating this can get complicated — especially if you compare multiple bonds.
That’s why we built a dedicated tool to make it effortless.
Try it here: Zero-Coupon Bond Yield Calculator
Zero-coupon bonds have unique advantages that appeal to certain investors:
Predictable returns — you know exactly how much you’ll receive at maturity.
No reinvestment risk — since there are no coupon payments to reinvest.
Tax deferral potential — in some cases, you can delay taxes on gains until redemption.
Useful for long-term goals — like saving for education or retirement.
However, they also come with some risks — mainly interest rate risk and lower liquidity compared to traditional bonds.
Interest Rates:
When market rates rise, existing bond prices fall, which can lower your yield if sold early.
Credit Quality:
Bonds issued by governments are safer but offer lower yields. Corporate bonds may pay more but carry credit risk.
Time to Maturity:
Longer maturities usually mean higher yields — but also greater sensitivity to interest rate changes.
Market Conditions:
Economic outlook and inflation expectations play a big role in determining bond yields.
Instead of crunching numbers manually, use our free online calculator to quickly find your bond’s yield.
Just enter:
The bond’s face value
The purchase price
The number of years to maturity
In seconds, you’ll see your annualized yield and can compare results for multiple bonds.
Access it now: Zero-Coupon Bond Yield Calculator
Zero-coupon bonds offer a clear and predictable way to grow your wealth over time.
By understanding how their yield works — and using tools like the Zero-Coupon Bond Yield Calculator — you can make smarter investment decisions and plan your portfolio with confidence.
They offer fixed, predictable returns with no reinvestment risk since there are no periodic interest payments.
Government-issued zero-coupon bonds are relatively safe, but all bonds carry some level of market and interest rate risk.
Use the Zero-Coupon Bond Yield Calculator to instantly compute your annualized yield.