CFA Level I · CFA Level I Exam · Fixed-Income Instrument Features
A bond requires the issuer to repay the entire principal in one payment on the maturity date, with periodic payments consisting only of interest. This repayment structure is best described as a:
This is a bullet bond. Periodic payments cover interest only, and the whole principal is repaid in a single payment at maturity. Amortizing structures differ because they repay some or all of the principal gradually through scheduled payments before maturity.
- Abullet bondCorrect
- Bfully amortizing bond
- Cpartially amortizing bond
Explanation
A bullet bond pays only interest during its life and returns the full principal at maturity. A fully amortizing bond repays principal gradually through each payment. A partially amortizing bond repays part of the principal over time and leaves a balloon payment at maturity.
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