Question

Discussion: The zero-coupon bonds have never really been a significant investment product that has been issued in Australia. Comment as to why this may be the case.

Answer 1

Zero coupon bonds are issued at discount and they will be redeeming themselves at par value and they will not be paying any kind of interest payment so these zero coupon bonds are generally highly traditional concept which are not paying with any kind of interest so investors are often investing into bonds for regular income in the form of interest and the zero coupon bonds will be providing them with the face value at the maturity and they are also issued for the longer period of time so these are having a very low popularity in the investment domain and hence there is very low level of circulation and there is also a risk related to the solvency of the business and other corporations who are issuing zero coupon Bond in the long run and there is a high risk related to the maturity risk and hence investors are sceptical about subscribing to the zero coupon bonds and there is not much interest in the general public about zero coupon bonds and the Corporates about zero coupon bonds in Australia so these are not regularly traded in Australia as they are not having much benefits for the investors and hence investors are not demanding for Zero coupon bonds because better type of Bonds are available in the market which are having higher rate of payment with a lower risk and zero coupon bond is an outdated concept and it is not popular in Australia.