The interest on a bond that has accumulated since the last interest payment is known as accrued interest
When two parties exchange bonds, the buyer is obligated to pay the accumulated interest to the seller
This is because the seller is entitled to receive the interest payment that has accumulated since the last payment date
For zero coupon bonds, there is no periodic interest payment, so there is no accrued interest
Instead, the discount between the purchase price and the face value of the bond represents the implied interest rate
The greater the discount, the higher the implied interest rate. This is because the investor is paying less for the bond upfront and will receive the full face value at maturity
When zero coupon bonds are traded, the transaction is typically settled at the time of maturity
This means that there is no accrued interest involved in the transaction