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

Features of treasury bills, Features of Treasury Bills Treasury Bills a...

Features of Treasury Bills Treasury Bills are short-term, rupee denominations issued by the Reserve Bank of India (RBI) on behalf of the Government of India. T-bills are issued

Evaluate the extent to which the balanced scorecard, Evaluate the extent to...

Evaluate the extent to which the Balanced Scorecard: The Balanced Scorecard has been described as an effective measurement system which enables managers of an organisation to

What is the significance of working capital, Q. What is the significance of...

Q. What is the significance of Working Capital? Meaning of Working Capital: - Working capital management is an significant aspect of financial management. In business money is

Participants in hedge funds-management company, The Manager or Management C...

The Manager or Management Company The firm sponsoring the Fund could often structure it as a management company. Its primary responsibility is to determine investment strategie

Illustration of total return on investment, Illustration  An inve...

Illustration  An investor with a 1-year investment horizon purchases a 20-year 5% corporate bond. The prevailing price of the bond is Rs.82.3488 for a yield of 6.2%

Options markets, Options Markets: Man has always been innovative and in...

Options Markets: Man has always been innovative and ingenuous. His determination to improvise and overcome the limitations of various processes has resulted in phenomenal and e

Weighted average cost of capital , I need report on Weighted Average Cost o...

I need report on Weighted Average Cost of Capital. Do you provide help in topic Weighted Average Cost of Capital? I need expert's assistance to solve my college assignment. Please

Current yields for treasury bond, ACT presently is all-equity financed. Thi...

ACT presently is all-equity financed. This reflects the stance of the former CEO, a dominant personality who stated repeatedly: "I don't want us to be in thrall to the demands of t

Explain and compare the costs of hedging, Explain and compare the costs of ...

Explain and compare the costs of hedging via the forward contract and the options contract. Answer: There is no up-front cost of hedging through forward contracts. Though, in t

Define assumption behind experience approach to forecasting, What is the pr...

What is the primary assumption behind the experience approach to forecasting? The experience approach to forecasting is relies on the assumption that things will happen a fixed

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