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CFA Level I · CFA Level I Exam · Fixed-Income Cash Flows and Types

Compared with a fixed-rate bond of the same maturity, a payment-in-kind (PIK) bond is most likely to:

A PIK bond most likely pays its coupon in additional bonds rather than in cash. This conserves the issuer's cash in the early years. Resetting to a reference rate describes a floater, and a single payment at maturity describes a zero-coupon bond.

  1. Apay coupons in additional bonds instead of cashCorrect
  2. Bpay a coupon that resets to a reference rate
  3. Cpay all interest at maturity in a single sum

Explanation

A PIK bond lets the issuer pay coupon interest by issuing additional bonds rather than cash, conserving cash. Resetting coupons describe floaters, and paying all interest at maturity describes a zero-coupon structure.

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