CFA Level I · CFA Level I Exam · Fixed-Income Instrument Features
A bond's coupon is set at 7% for the first three years and steps up to 9% thereafter. Which description best fits this coupon structure?
This is best described as a step-up coupon bond. Its coupon rises on a predetermined schedule, here from 7% to 9% after three years. A deferred coupon bond pays nothing at first, and inflation-linked bonds adjust payments according to an inflation index.
- AA step-up coupon bondCorrect
- BA deferred coupon bond
- CAn inflation-linked bond
Explanation
A step-up coupon bond has a coupon that increases on a predetermined schedule. A deferred coupon bond pays no coupons initially, and an inflation-linked bond adjusts payments to an inflation index, not a preset schedule.
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