A zero interest bearing note is a debt instrument that does not require any interest payments along with the principle payments. These notes, which are also called coupons, are sold at a discount to their face value due to the fact that only the principle is repaid. The value is implied through the discount that the investor is given. The net liability is calculated by the remaining principle value left on the note.
Issue a zero interest bearing note that does not have any interest payments. It will be at a deep discount to the face value. For example, if the note is worth $1 million to be paid back over four years, the price today might be $600,000.
Receive the $600,000 as proceeds from the note issuance. Divide up the $1 million dollar value of the bond into equal segments for the life of the note. In this scenario, there are 48 months in four years so each month would return approximately $20,833
Subtract each month's payments from your $1 million outstanding liability. After the first month your remaining liability would equal: 1,000,000 - 20,833. = $979,167 After one year your liability would equal: 1,000,000 - (12 X 20,833) = $749,996.
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