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

Central bank, Central Bank : The Central Bank is the nation's principal ...

Central Bank : The Central Bank is the nation's principal monetary authority responsible for the monetary policy of the country. It regulates money supply and credit, issues cur

Explain adjustments necessary to translate enterprise value, Explain the ad...

Explain the adjustments necessary to translate enterprise value to the total present value of common equity. To gain the value of the company's common stock add the value of th

Capital gain on investment, a. Why do prices of low coupon bonds tend to fl...

a. Why do prices of low coupon bonds tend to fluctuate more than the prices of high coupon bonds? And why do prices of longer te$ to maturity bonds tend to fluctuate more than th

Out of cash, Out of Cash Calculated by taking organization cash on hand...

Out of Cash Calculated by taking organization cash on hand divided by its burn rate, yielding the time period that the organization will have enough cash to cover what it wants

Pay back period (pbp) , Pay Back Period (PBP) : This is the most popula...

Pay Back Period (PBP) : This is the most popular method employed by industrial practitioners for ranking investment projects. This is described as the "period required for a pr

Step-up (step down) notes, These types of securities have more ...

These types of securities have more than one coupon rate and each subsequent coupon rate is higher (or lower) than the previous coupon rate. For

Determine rates that company enter into a $/£ currency swap, Suppose a comp...

Suppose a company is quoting swap rates as follows:  7.75 - 8.10 percent yearly against 6-month dollar LIBOR for dollars and 11.25 - 11.65 percent yearly against six-month dollar L

Components of working capital, Examine the components of working capital & ...

Examine the components of working capital & also explain the concepts of working capital.

MIS, evaluation and maintenance of MIS

evaluation and maintenance of MIS

What is the financial leverage effect and what causes it, What is the finan...

What is the financial leverage effect and what causes it?  What are the potential benefits and negative consequences of high financial leverage? Monetary leverage is the additi

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