Page 36 - FINAL CFA SLIDES DECEMBER 2018 DAY 14

Other coupon structures: Session Unit 14:
50. Fixed income securities: Defining elements

• Step-up coupon bonds -coupon rate increases over time according to a predetermined schedule.

These often have a call feature!

• Credit-linked coupon bond -coupon rate will go up by a certain amount if the credit rating of the

issuer falls, and go down if the credit rating of the issuer improves.

• Payment-in-kind (PIK) bond -make the coupon payments by increasing the principal amount of the
tanties
outstanding bonds, essentially paying bond interest with more bonds.

• Deferred coupon bond, also called a split coupon bond, regular coupon payments do not begin until

a period of time after issuance.

• Index-linked bond has coupon payments and/or a principal value that is based on a commodity

index, an equity index, or some other published index number. Inflation-linked bonds (also called
linkers) are the most common! Indexed bonds that will not pay less than their original par value at

maturity, even when the index has decreased, are termed principal protected bonds.