The 5 percent coupon bond pays annual interest of 5 percent of the bond’s par value. For $1,000 par value bond, this would be $50 per year.  This interest might be paid in two payments of $25.  The price of the coupon bond tends to stay near its par value. The zero coupon bond pays no interest payments.  The bondholder earns a return from the increase of the bond’s market price over time.  The bond’s price is initially much lower than its par value.  When the zero coupon bond finally matures, the par value is paid.