Zero Coupon Bond Effective Yield Calculator: Maximize Your Investment Returns
Use the calculator to divide face value by purchase price, raise the result to 1 / years, then subtract 1; a $10,000 bond bought for $8,500 held 2 years yields 8.47 % annually (SEC Investor Bulletin, 2021).
Zero Coupon Bond Effective Yield Calculator
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How to use the tool
Face Value: Enter the amount due at maturity. Example inputs: $10,000 or $75,000.
Present Value: Type what you pay today. Try $8,500 or $60,000.
Number of Periods (Years): Insert time to maturity, e.g., 2 or 5.
Press “Calculate Yield” and read the annualized effective yield expressed as a percentage.
Typical zero-coupon Treasury STRIPS maturities range 1–30 years (TreasuryDirect, https://treasurydirect.gov).
OID income is taxable yearly even without cash payment (IRS Pub 1212, 2023).
Average daily trading volume for STRIPS exceeds $14 billion (SIFMA, 2024 US Bond Market Report).
Minimum face amount for new STRIPS is $100 (TreasuryDirect, https://treasurydirect.gov).
FAQ
What is a zero-coupon bond?
A zero-coupon bond sells at a discount and pays only face value at maturity, skipping periodic coupons (SEC Investor Bulletin, 2021).
How does the calculator find effective yield?
It computes the discount growth rate by applying the compound-interest formula shown above and expresses it as an annual percentage.
Why use effective yield instead of current yield?
Effective yield captures compounding over the bond’s life, giving a truer return measure than current yield, which is zero here (CFA Institute, 2020).
Are gains taxed each year?
Yes. Original Issue Discount accrues annually and appears as taxable interest income, even without cash received (IRS Pub 550, 2023).
How do STRIPS differ from corporate zeros?
STRIPS carry U.S. Treasury credit risk, essentially none, while corporate zeros depend on issuer credit quality (FINRA Bond Basics, 2022).
Can I lose money with a zero-coupon bond?
You can if you sell before maturity at a lower price or issuer defaults; rising rates cut market prices (Federal Reserve, 2023).
What happens if rates fall after purchase?
The bond’s price rises because the fixed discount becomes more attractive versus new lower-yield securities (Bloomberg Bond Guide, 2024).
What’s the highest practical maturity for zeros?
U.S. Treasury STRIPS extend to 30 years; longer maturities exist rarely in corporate markets (TreasuryDirect, https://treasurydirect.gov).
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