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    Question

    A bond that pays compounded interest but the actual cash payment of the bond is deferred till maturity is known as:

    A Zero Coupon bond Correct Answer Incorrect Answer
    B Accrual bond Correct Answer Incorrect Answer
    C Step-up bond Correct Answer Incorrect Answer
    D Floating rate bond Correct Answer Incorrect Answer
    E Debenture Correct Answer Incorrect Answer

    Solution

    ·    An accrual bond is a bond in which the interest or coupon of the bond keeps accruing and is paid at the time of maturity and not at regular intervals. The interest is thus, cumulative that is paid on maturity. ·    A zero coupon bond is one that pays no periodic interest and are sold at a discount to par value. ·    A step-up bond is one that has a coupon rate that increases over time as per a specified schedule. ·    Floating rate bond is one on which the coupon rate is not fixed but based on a market reference rate (like MIBOR) plus some margin. ·    A debenture is like a normal bond on which no specific collateral is given by the issuer.

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