Accrual bond, Financial Management

Assignment Help:

 

It is a bond that does not give periodic interest payments. In spite of that, interest is added to the principal balance of the bond and is either paid at maturity or, at some point, the bond starts to pay both principal and interest on the basis of the accrued principal and interest to that point. 

When the bond starts to pay principal and interest on the basis of accrued principal and interest at that point then this is called as a Z tranche and is ordinary in collateralized mortgage obligations (CMOs). In a CMO that involves a Z tranche, the interest payments that else would be paid to the Z-tranche holder are utilized to pay down the principal of the other tranche. After that tranche is paid off, the Z tranche starts to pay down based on the original principal of the tranche added with the accrued interest. 

Parallel to a zero-coupon bond, an accrual bond or Z tranche has partial or no reinvestment risk. Though, accrual bonds, by definition, have a longer duration than bonds with the equal maturity that create regular interest or principal and interest payments. As such, accrual bonds are exposing to greater interest rate risk than bonds that make periodic payments over their full terms.

 

 

 

 


Related Discussions:- Accrual bond

Working capital as a percentage of net sales, Q. Working Capital as a Perce...

Q. Working Capital as a Percentage of Net Sales? This approach to estimate the working capital requirement is based on the fact that the working capital for any firm is directl

Margin trading, Margin Trading: Suppose an investor wants to buy 100 Re...

Margin Trading: Suppose an investor wants to buy 100 Reliance Energy shares, whose market price is Rs.500. This transaction requires Rs.50,000 but the investor has only Rs.30,0

Effective duration and convexity, Effective Duration and Convexity The ...

Effective Duration and Convexity The modified duration is a measure of the sensitivity of a bond's price to interest rate changes; the assumption made here is that the expected

Marketing, How to use integrated promotional mix to achieve marketing objec...

How to use integrated promotional mix to achieve marketing objectives

Put, Put This is an agreement which is allowing a holder of privacies t...

Put This is an agreement which is allowing a holder of privacies to sell them back to the issuer at a specified amount during a specified time interval. This technique protects

Foreign bonds, They are issued in the local market, by a foreig...

They are issued in the local market, by a foreign borrower are usually denominated in the local currency. For example, Yankee bonds are USD denominated bon

Relevance of development of money market, Relevance of Development of Money...

Relevance of Development of Money Market The development of the money market is important for the debt market especially through the process of liquidity. The money market prov

Defects in the companys system, The case of McKesson & Robbins scandal (193...

The case of McKesson & Robbins scandal (1938) was happen due to internal fraud. This case is also happen by the faulty work of board of directors. The organization of McKesson & Ro

Describes the methods of capital budgeting, Q. Describes the methods of Cap...

Q. Describes the methods of Capital Budgeting? Capital Budgeting: - Capital Budgeting is the procedure of making decisions for investment in long-term assets. It is a method of

Tax-backed debt, An analyst should first examine the issuers ...

An analyst should first examine the issuers debt structure in order to analyze the tax-backed debts. The debt burden consists of respective direct a

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd