Installment Bond

An installment bond is a bond which is issued as a series of bond issues, each of which has a different bond term. This term is synonymous with the term serial bond.

When an issue matures at the end of its bond term, the issuer repays the bond principal for that bond issue. Once an issue has matured and its principal has been repaid, the borrower no longer pays a coupon for that issue.

Issuing installment bonds rather than straight bonds can make it easier for borrowers to meet their debt obligations because they can repay their loans in installments rather than having to repay all debt at once when their bond matures. It also cuts the cost of the loan by reducing bond principal.

Installment bonds are also attractive to investors who are willing to trade off coupon payments for a reduction in risk. Because investors are repaid part of the loan principal every time a bond issue matures, they carry less risk of loss in the event that the issuer goes bankrupt at some point during the full bond term. This is particularly beneficial in the case of bonds with very long terms because the risk of issuer bankruptcy during long terms is difficult to rule out.

More on this topic:
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