Zero Coupon Security Investment

Such zero coupon security is other terms presented by stripped bond which is usually done by brokerage or a bank. The work is done by registering and trading the zero as individual security. After being stripped the coupon will be divided into two parts including the principals and the coupons. Either coupons or residuals is considered as zero coupon bonds or called as zeros.
The advantage of using this zero coupon security is that the investors will able to buy a very low price of the investment, yet they can sell the coupon back within higher price than the price when they buy the coupons. This is quite profitable since the investors can obtain a lot of income since they just have to spend a little money for high profit. The other advantage is that when the interest is low, this investment will cost higher. That is why commonly the investors will buy such zero during the highest interest where the bond is at deepest discount.
However, instead of offering such advantages as mentioned in the previous paragraph, the use of zero coupon security will also cause certain risks in terms of annual accumulated return which is considered as income. If the investors do not collect the bond until it reaches up its maturity, the investors have to pay income tax which will reduce their income themselves.