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Deep-discount bonds are bonds under which periodic cash flows are made that cover some of the interest liability during the life of the instrument but the amount is substantially below market interest.

## What do you mean by deep discount bond?

A deep-discount bond is a bond that sells at a significantly lesser value than its par value. In particular, these bonds sell at a discount of 20% or more to par and has a yield that is significantly higher than the prevailing rates of fixed-income securities with a similar profiles.

## What is Deep discount Loan?

A deep discount bond (DDB) is a form of bond or loan note which is issued at a significant discount to its face value. It therefore records a promise by the issuer of the bond (the borrower) to pay the bondholder, on the stated maturity date, an amount which is greater than the amount originally received.

## How do I buy deep discount bonds?

Each Deep Discount Bond of the face value of Rs. 2,00,000 will be issued at a discounted price of Rs. 5200 and will be redeemed at its face value of Rs.

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Terms of Payment | |
---|---|

Type of Bond | Full amount payable on Application (Rs.) |

ASHIRWAD Deep Discount Bond | |

Option I | Rs. 5,200 per Bond |

Option II | Rs. 5,200 per set of Bonds |

## Why zero coupon bond is called a deep discount bond What is interest only loan?

Regular bonds, which are also called coupon bonds, pay interest over the life of the bond and also repay the principal at maturity. A zero-coupon bond does not pay interest but instead trades at a deep discount, giving the investor a profit at maturity when they redeem the bond for its full face value.

## Which is another name for deep discount bonds?

A zero coupon bond (also discount bond or deep discount bond) is a bond in which the face value is repaid at the time of maturity. That definition assumes a positive time value of money. It does not make periodic interest payments or have so-called coupons, hence the term zero coupon bond.

Discount bonds can be riskier but the lower the price, the higher the potential for gains. Premium bonds can deliver higher returns with less risk, but they can be problematic if they become callable.

A premium bond has a coupon rate higher than the prevailing interest rate for that bond maturity and credit quality. A discount bond, in contrast, has a coupon rate lower than the prevailing interest rate for that bond maturity and credit quality. … This bond has a 5% coupon rate and you want to sell it now.

## What happens to a discount bond as the time to maturity decreases?

Similarly, for a discount bond we will show that as term to maturity increases, the price decreases at a decreasing rate. Therefore, as the bond approaches the maturity and the term to maturity decreases, the price of a discount bond increases at an increasing rate.

## How do you calculate a bond discount?

First, calculate the bond’s market price by adding the current values of the interest payments to the principal. Then, subtract the face value from the market price you just worked out. This will give you the bond’s discount.

## What happens when a bond’s expected cash flows are discounted?

What happens when a bond’s expected cash flows are discounted at a rate lower than the bond’s coupon rate? … The price of the bond increases.

## Why would a company issue a bond at a discount?

Discounts also occur when the bond supply exceeds demand when the bond’s credit rating is lowered, or when the perceived risk of default increases. Conversely, falling interest rates or an improved credit rating may cause a bond to trade at a premium.

## What is the full form Icici Bank?

Industrial Credit and Investment Corporation of India. Type.

## What is the purpose of zero-coupon bonds?

Zero coupon bonds are bonds that do not pay interest during the life of the bonds. Instead, investors buy zero coupon bonds at a deep discount from their face value, which is the amount the investor will receive when the bond “matures” or comes due.

## What are the benefits of zero-coupon bonds?

Advantages of zero-coupon bonds

- They often have higher interest rates than other bonds. …
- They offer a predictable payout. …
- They’re very sensitive to interest rates. …
- You have to pay taxes on income you don’t get. …
- There is a default risk. …
- Bonds vs.

## Who uses zero-coupon bonds and why?

Federal agencies, municipalities, financial institutions and corporations issue zero-coupon bonds. One of the most popular zeros goes by the name of STRIPS (Separate Trading of Registered Interest and Principal Securities).