Here is how zero coupon bonds work: Suppose you buy a zero-coupon bond with a face or par value of Rs. 30,000. Say it has a maturity period of 20 years and comprises an imputed interest rate of 10%. So, as per the formula for calculating the bond price, the zero coupon bond might sell for Rs. 4459. When the bond matures 20 years later, the bondholder will get the full face value of the bond as a lump sum amount of Rs. 30,000 — a whopping return of Rs. 25,541 on their investment. This profit arises from the interest rate associated with the bond that gets compounded annually until maturity.