CFA Level I · CFA Level I Exam · Fixed-Income Cash Flows and Types
A bond requires the issuer to repay the entire principal in a single payment on the maturity date, with periodic interest paid until then. This principal repayment structure is best described as a:
This is a bullet bond. The issuer pays only interest until maturity and then repays the full principal in one lump sum. Fully amortizing and sinking fund bonds both retire principal gradually before maturity, so they do not match the description.
- Abullet bondCorrect
- Bfully amortizing bond
- Csinking fund bond
Explanation
A bullet bond repays the whole principal at maturity and pays only interest before then. A fully amortizing bond repays principal gradually through each payment. A sinking fund bond retires principal in stages before maturity.
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