Question-21: Does MBS and ABS securities are also having the coupon payment semiannually?

Answer: No, this is the exception in MBS/ABS usually provides monthly cash-flows.

Question-22: What do you mean by zero-coupon bonds?

Answer: Zero-coupon bonds have been issued by corporations and municipalities. The U.S. Treasury does not issue zero-coupon debt with a maturity greater than one year. The investor/holder/owner in a zero-coupon security typically receives interest by buying the security at a price below its principal, or maturity value, and holding it to the maturity date. However, zeros coupon bonds are also issued at par but redeemed with accrued interest during the bond’s life, with principal.

Question-23: What do you mean by inflation-linked bonds or linkers?

Answer: Sovereign governments and corporations issue securities with a coupon rate tied to the rate of inflation. These debt instruments, referred to as inflation-linked bonds, or simply “linkers”. In United States inflation-linked security called as Treasury Inflation Protected Securities, or TIPS. The U.S. government-related entities such as the Federal Farm Credit, Federal Home Loan Bank, Fannie Mae, and the Tennessee Valley Authority are issuing linkers.

Question-24: Is it possible to have bonds which has coupon rate increase over the time?

Answer: Yes, there are securities that have a coupon rate that increases over time. These securities are called step-up notes because the coupon rate “steps up” over time. For example, a six-year step-up note might have a coupon rate that is 7% for the first year, 7.2% for the next three years, and 7.7% for the last two years.

Question-25: What do you mean by floating-rate fixed income bonds?

Answer: There are bonds which does not have fixed coupon rate for entire life, which is known as floating-rate security or floater which has several different types of securities with one common feature

• The coupon rate will vary over the bond’s life.
• The coupon rate is reset at designated dates based on the value of some reference rate adjusted for a spread.
• For instance, floater delivered cash flows semi-annually and had a coupon formula equal to six-month LIBOR plus 75 points.