Many investors prefer investments with predictable returns at a fixed rate.
Since zero coupon bonds accomplish this objective, they are both attractive and advantageous to investors with specific future needs, such as a child's college education. Zero coupon bonds are bonds that are sold at a discount to their face value and do not make interest payments to the holders. Instead, as time passes, the value of the bonds increases until the bonds are redeemed for full face value at maturity. Thus, because the face value of the bonds and the maturity date are specified, you can buy just the exact amount necessary to meet future needs. The principal value of zero coupon bonds is subject to market fluctuation, and if sold prior to maturity, their yield may be different than initially quoted.