Glossary: FI Module 02 — Cash Flows and Types
| Term | Definition |
|---|---|
| Bullet bond | A bond that repays the entire principal at maturity with no amortization |
| Amortizing bond | A bond that repays principal gradually through periodic payments over its life |
| Fully amortizing bond | An amortizing bond with no remaining principal at maturity (e.g., fixed-rate mortgage) |
| Partially amortizing bond | An amortizing bond with a balloon payment of remaining principal at maturity |
| Sinking fund | A provision requiring the issuer to retire a portion of outstanding bonds periodically |
| Floating-rate note (FRN) | A bond whose coupon rate resets periodically based on a reference rate plus a spread |
| Reference rate | The benchmark rate used to set FRN coupons (e.g., SOFR, EURIBOR) |
| Quoted margin (spread) | The fixed spread added to the reference rate to determine the FRN coupon |
| Cap (on FRN) | A maximum coupon rate on an FRN; benefits the issuer |
| Floor (on FRN) | A minimum coupon rate on an FRN; benefits the investor |
| Step-up coupon bond | A bond with a coupon rate that increases on a predetermined schedule |
| Payment-in-kind (PIK) bond | A bond that pays interest by issuing additional bonds rather than cash |
| Original issue discount (OID) bond | A bond issued at a price below par value |
| Zero-coupon bond | A bond that makes no periodic coupon payments; sold at a discount and redeemed at par |
| Deferred coupon bond | A bond that pays no coupon for an initial period, then pays regular coupons thereafter |
See also: Bond Features