1. What is a Zero Coupon Treasury Bond?

A Zero Coupon Treasury Bond (like the EE Series) is a bond that doesn't pay periodic interest but is issued at a discount to its face value. The bond's value grows over time until maturity when it's redeemed for its full face value.

2. How Does the Calculator Work?

The calculator uses the zero coupon bond formula:

Where:

• \( FV \) — Face value of the bond at maturity
• \( r \) — Annual interest rate (in decimal form)
• \( n \) — Number of years until maturity

Explanation: The formula discounts the future value back to present value using compound interest principles.

3. Importance of Bond Valuation

Details: Calculating the present value of zero coupon bonds helps investors determine the fair price to pay today for a bond that will pay a fixed amount in the future.

4. Using the Calculator

Tips: Enter the bond's face value in dollars, the annual interest rate as a decimal (e.g., 0.05 for 5%), and the number of years until maturity. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What makes EE Series bonds special?
A: EE bonds are guaranteed to double in value after 20 years, effectively providing a minimum interest rate.

Q2: How is the interest rate determined?
A: For EE bonds, the rate is fixed at purchase and may have a minimum guaranteed return.

Q3: Are zero coupon bonds taxable?
A: Yes, the imputed interest is taxable annually as it accrues, even though you don't receive cash payments.

Q4: What's the difference between EE and I bonds?
A: EE bonds have fixed rates while I bonds have rates adjusted for inflation.

Q5: Can I cash EE bonds before maturity?
A: Yes, but you must hold them for at least 1 year, and cashing before 5 years forfeits the last 3 months' interest.