CFA Level I · CFA Level I Exam · Fixed-Income Cash Flows and Types
A bond's indenture specifies that the issuer will pay interest of 4% of par annually and repay the full par amount only on the maturity date. This bond is best described as having:
The bond has a bullet structure with a fixed coupon. The full principal is repaid only at maturity, and the 4% coupon is constant. An amortizing bond would repay principal gradually, and a floating coupon would reset with a reference rate.
- Aa bullet structure with a fixed couponCorrect
- Ban amortizing structure with a fixed coupon
- Ca bullet structure with a floating coupon
Explanation
Principal is repaid entirely at maturity, which defines a bullet structure. A 4% coupon that stays constant is a fixed coupon. An amortizing bond would repay part of the principal over time, so option B is wrong.
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