Zero-coupon bonds are fixed-income securities that are sold at a deep discount. They pay principal and interest upon maturity, not periodically like coupon bonds. The difference between the amount you pay for the bonds and the amount you receive on maturity equals the return on your investment. If the zero-coupon bonds are municipal obligations, or municipal zero-coupon bonds, they generally are tax-exempt from Federal and state taxes for residents of the issuing state. The market value of zero-coupon bonds fluctuate more to changes in market conditions than regular coupon bonds and therefore may not be suitable for all investors. Interest on some municipal bonds may be subject to the Alternative Minimum Tax (AMT).