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Sunday, April 23, 2017

Short Notes on zero-interest-earning note

A zero-interest-earning note is issued for cash. The amount of cash (the present value) is less than the face value (the future value) of the note. The difference between the face value and the cash is the discount which reflects the interest that will be amortized over the life of the note. 
 
In other Sense, A non interest-bearing note or zero-interest-earning note is a note or bond with no stated interest rate on its face. Contrary to the name, non interest-bearing notes do actually pay interest. The interest is implied in the face value of the note.
 
A non interest-bearing note or zero-interest-earning note works the same way a discounted bond works. The note is issued for a lessor amount than the face value. After the note matures the entire face value is repaid. It might be easier to look at an example.
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