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

Issuing procedure - t-bills, Issuing Procedure Treasury bills are sold ...

Issuing Procedure Treasury bills are sold using the auction procedure. The Treasury entertains both competitive and non-competitive tenders for T-Bills. Government securities f

Principle of opportunity cost, Suppose you have recently been contracted as...

Suppose you have recently been contracted as a financial consultant to a London-based engineering company, Alpha Products Plc. The company uses three components as part of their pr

What happens when a bank charges discount interest on a loan, What happens ...

What happens when a bank charges discount interest on a loan? While a bank charges discount interest on a loan the required interest payment is subtracted from the loan carries o

Approaches to valuing asset-backed securities, There are two approach...

There are two approaches to value Asset-Backed Securities. They are: Zero-Volatility Spread (Z-spread) Approach. Option-Adjusted Spread

Binomial model, The option features embedded in many bonds and fixed-...

The option features embedded in many bonds and fixed-income securities have made the binomial interest rate tree approach a valuable model for pricing debt. Binomial

Scope of finance functions, SCOPE OF FINANCE FUNCTIONS The functions of...

SCOPE OF FINANCE FUNCTIONS The functions of Financial Manager can generally be sub-divided into two: The Routine functions and the Managerial Functions. Managerial Finance F

Define factor fx call or put option model price is function, List the argum...

List the arguments (variables) of which a FX call or put option model price is a function.  How does the call and put premium change with respect to a change in the arguments?

#title.OPERATING CYCLE, DISCUSS THE APPLICABILITY OF OPERATING CYCLE IN VEG...

DISCUSS THE APPLICABILITY OF OPERATING CYCLE IN VEGETABLE GROWING.

What is accumulated depreciation?, What is accumulated depreciation? De...

What is accumulated depreciation? Depreciation is the provision of an asset's initial cost over time.  Accumulated depreciation is the sum of all the depreciation expense that

Define leveraged buyout, What is an LBO?  What are the risks for the equity...

What is an LBO?  What are the risks for the equity investors and what are the potential rewards? A term leveraged buyout is a purchase of a publicly owned corporation through a s

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