What primarily differentiates a zero-coupon bond from a regular bond?

A zero-coupon bond is primarily characterized by the fact that it pays no interest until maturity. Instead of making periodic interest payments (such as those typically associated with regular bonds), a zero-coupon bond is sold at a discount to its face value, and the investor receives the full face value upon maturity. The difference between the purchase price and the face value represents the return on investment.

Understanding this feature is crucial as it means the investor will not receive any cash flow until the bond matures, making it distinct from regular bonds which usually provide periodic interest payments. This structure can appeal to certain investors, particularly those looking to match future liabilities with cash flow at maturity.

Other options, while related to bonds, do not accurately capture the defining characteristic of zero-coupon bonds. For instance, the structure of a zero-coupon bond does not involve a variable interest rate, nor does it imply that the bond cannot be traded—these bonds can indeed be traded in the market. Lastly, while the risk of default can be a factor for any type of bond, it does not specifically differentiate zero-coupon bonds from regular bonds.