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  • February 27, 2021
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Zero-Coupon Call

A financial instrument (particularly a fixed income instrument) that combines the features of a zero-coupon bond and a call bond. In other words, it a zero-coupon bond that is embedded with a call option (whether American call or European call). A zero coupon call option on a zero coupon bond allows investors to lock in current interest rates for the entire duration of the bond.

In general, increasing/ decreasing interest rates leads to higher/ lower option payoffs due to the inverse relationship between bond prices and interest rate.


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