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

Risk and return of portfolio, Portfolios are simply combinations of differe...

Portfolios are simply combinations of different securities. The characteristics of investments do differ when we possess them in combinations or portfolios. As we shall see, an ass

Leverage, Evaluate the importance of leverage in financial management of a ...

Evaluate the importance of leverage in financial management of a small scale company

Cost of capital, the nu-nu brothers inc. (NNBI) has the following capital s...

the nu-nu brothers inc. (NNBI) has the following capital structure,

Why business spend time, Why do businesses spend time, effort, and money to...

Why do businesses spend time, effort, and money to produce forecasts?  Explain. Businesses succeed or fail relies on how well organized they are to deal with the situations they

Poultry broilers, discuss the applicability of operating cycle in poultry (...

discuss the applicability of operating cycle in poultry (consider broilers)

Calculate expected gain or loss from the forward hedging, 1. A company sold...

1. A company sold a super computer to an Institute in Germany on credit and invoiced DM 10 million payable in six months. Presently, the six-month forward exchange rate is $1.50/DM

Critically evaluate data & resources-critically analyse, Crown casino recen...

Crown casino recently announced its intention to build a new 500-room luxury hotel in Perth costing approximately $568 million. As part of the agreement, the WA government has agre

What is return oncapital employed - performance ratios, What is Performanc...

What is Performance ratios ROCE Return oncapital employed (ROCE)= (Profit before interest and tax (PBIT) / Capital employed) * 100% ROCE measures profitability and illu

Explain systematic risks in financial management, Q. Explain Systematic Ris...

Q. Explain Systematic Risks in Financial management? Systematic risk in non-diversifiable and is associated with the securities Market as well as economic, sociological, politi

Features of a budget, FEATURES OF A BUDGET a.         It is prepared f...

FEATURES OF A BUDGET a.         It is prepared for a specific period. b.         It is expressed in quantity or money or both. c.         It is a statement describing ob

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