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

Prepare a report for the managing director, The Managing Director of your f...

The Managing Director of your firm is thinking aloud about an appropriate gearing level for the company: "The consultants I spoke to yesterday explained that some theorists adva

Limitation of weighted average cost of the capital, Q. Limitation of weight...

Q. Limitation of weighted average cost of the capital? 1) Determine the Weight; the first and foremost difficulty in computing the average cost is to an easy job. This type of

What is gross dividend, Gross dividend At the ending of the financial ...

Gross dividend At the ending of the financial year companies will announce the profits or losses that they have earned and a figure for net profit after tax. A company is able

Define country’s economic well being enhanced, How is a country’s economic ...

How is a country’s economic well-being enhanced through free international trade in goods and services? As per to David Ricardo, with free international trade, it is mutually adv

Types of traders in future and option markets, Types of Traders in Future a...

Types of Traders in Future and Option Markets: Hedgers Hedgers use the futures and options market principally for risk management purposes because of their exposure to pri

Ranking conflict net present value & internal rate of return, Explain how t...

Explain how to resolve a "ranking conflict" between the net present value and the internal rate of return.  Why should the conflict be resolved as you explained? Whenever there

Process of bringing a new international bond issue to market, Discuss the p...

Discuss the process of bringing a new international bond issue to market. Answer:  A borrower desiring to increase funds by issuing Eurobonds to the investing public will conta

Show financial management process, Q. Show Financial Management Process? ...

Q. Show Financial Management Process? The financial management process begins with the financial planning and decisions. While implementing these decisions, the firm has to acq

Current assets management, how is operating cycle applicable to poultrybusi...

how is operating cycle applicable to poultrybusiness in Uganda (broilers)

Explain composite currency bond, Explain Composite Currency Bond Compos...

Explain Composite Currency Bond Composite currency bonds are denominated in a currency basket, like SDRs or ECUs, in place of a single currency.They are often known as currency

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