What is a unique feature of a discount (zero coupon) note?

A discount or zero coupon note is characterized by the fact that it does not make periodic interest payments during its lifetime. Instead, it is issued at a price that is lower than its face or par value, and over time, the value of the note increases, or "accretes," to its full par value upon maturity. This accretion occurs due to the inherent interest that accumulates and is effectively considered unpaid until the note matures.

The unique feature of the note lies in this structure: investors do not receive cash flows throughout the life of the note, but instead benefit from a single payment at maturity that equals the par value. This is particularly attractive for investors looking for a straightforward investment that provides a lump sum at maturity rather than periodic cash flows.

In contrast, a note that makes cash coupon payments immediately indicates it is likely a traditional bond, which does not reflect the nature of a zero coupon note. The issuer does not receive actual proceeds equal to par value, as the proceeds are typically less than par value at issuance. Similarly, while third-party guarantees can enhance the attractiveness of various debt instruments, they are not a defining feature specific to discount notes.