Investment Glossary

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Zero sum game

a situation in which one person's gain must be matched by another person's loss. Without considering taxes and transaction costs, many types of investing, such as options and futures contracts, are examples of zero-sum games.

Zero-coupon bond

a bond that provides no periodic interest payments to the holder. A zero-coupon bond is issued at a fraction of its par value (perhaps at $30 to $50 for each $100 of face value for a very long-term bond) and increases gradually in value as it approaches maturity. Thus, an investor's return from a zero-coupon bond comes solely from appreciation in value. Zero coupon bonds are subject to larger price fluctuations than coupon bonds. (Although they exist, they are relatively uncommon in New Zealand).

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