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

Cash flow& funds flow statement , Explain cash flow and funds flow analysis...

Explain cash flow and funds flow analysis with suitable example from an existing corporate entity for at least three years i.e. 2008, 2009.2010.

Types of rating - sovereign rating, Sovereign Rating This...

Sovereign Rating This includes rating a country as to its creditworthiness, probability of default, etc.

Perfectly competitive market, What level of profits can you earn in a perfe...

What level of profits can you earn in a perfectly competitive market and what drives markets towards perfect competition over the long run?

Clemson software, Clemson Software is considering a latest project whose da...

Clemson Software is considering a latest project whose data are given below.  The needed equipment has a 3-year tax life, after which it will be worthless,and it will be depreciate

Buy side analyst, How to Industry analysis and finally stock picking from B...

How to Industry analysis and finally stock picking from Buy-side perspective

Define major causes for the current account deficits, The United States has...

The United States has experienced continuous current account deficits as the early 1980s. What do you think are the major causes for the deficits? What would be the results of cont

Decision-tree approaches, 1024x768 Normal 0 fals...

1024x768 Normal 0 false false false EN-IN X-NONE X-NONE

Cash flow estimation and risk ananlysis.., as a financial analyst, you must...

as a financial analyst, you must evaluate a proposed project to produce printer ink. the equipment would cost 60000 plus 10000 for installation. annual sales would be 5000 units at

Forms of regulation, Forms of Regulation There are different forms of r...

Forms of Regulation There are different forms of regulation to regulate market to fulfill certain objectives. These are discussed below: Disclosure Regulation The whole

Frankfurt stock exchange, Frankfurt Stock Exchange The roots of the Fran...

Frankfurt Stock Exchange The roots of the Frankfurt Stock Exchange may be traced back to the period of medieval fairs. As early as the middle of the ninth century, Emperor Ludwi

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