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

State the exam technique for analysing performance, Exam technique for anal...

Exam technique for analysing performance The below steps must be adopted when answering a question on analysing performance: Step 1    Review figures as they are and commen

Finance, Ask questiSuggestion regarding Credit limit. Should it be approved...

Ask questiSuggestion regarding Credit limit. Should it be approved or not, what should be the amount of credit limit that electronics give to Booth Plastics.

Role of investment banking in investment intermediaries, What is the role o...

What is the role of investment banking in investment intermediaries? Investment banks: These banks assist corporations or governments into the issue of new debt or equity

Analysis of company position, Analysis of Company Position Associated ...

Analysis of Company Position Associated International Supplies Ltd Circulation: Associated International Supplies Ltd (AIS Ltd.) Author: A. Consultant, AXY Consultin

Explain the risk–return relationship, Explain the risk–return relationship ...

Explain the risk–return relationship The relationship among the risk and required rate of return is termed as the risk–return relationship.  It is a positive relationship since t

Briefly explain tagna, TAGNA (a) Market effectiveness is commonly discu...

TAGNA (a) Market effectiveness is commonly discussed in terms of pricing efficiency. A stock market is expressed as efficient when share prices fully and fairly reflect relevan

Accounting change, Q. Accounting Change? Accounting Change - Change i...

Q. Accounting Change? Accounting Change - Change in (1) an accounting principle (2) an accounting estimate or (3)the reporting entity which necessitates DISCLOSURE and explan

Which banking regulators use in supervising banks, Question 1: In the f...

Question 1: In the financial system, the capital markets consist of the Bond and the Equities Market. Develop this statement. Question 2: (a) Discuss why banking regula

What are the predator shareholders, What are the Predator shareholders ...

What are the Predator shareholders Predator company's shareholders mayn't approve the bid for various reasons. Reduction in EPS If consideration is

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