The final tranche in a series of mortgage-backed securities that is the last one to receive payment. Used in some collateralized mortgage obligations (CMO), Z-bonds pay no coupon payments while principal is being paid on earlier bonds. Interest that would have been paid on Z-bonds is used instead to pay down principal more rapidly on the earlier series of bonds.

Interest payable on a Z-bond is added to the principal balance and becomes payable once claims on all prior bond classes have been satisfied. A Z-bond is similar to a zero-coupon bond, since it accrues interest rather than paying it out. Therefore, the final tranche is considered the most risky for the CMO class structures.

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… Received August 22, 1994; Revised January 17, 1996 Abstract. A variety of realistic economic considerations make jump-diffusion models of interest rate dynamics an appealing modeling choice to price interest-rate contingent claims …

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… Received August 22, 1994; Revised January 17, 1996 Abstract. A variety of realistic economic considerations make jump-diffusion models of interest rate dynamics an appealing modeling choice to price interest-rate contingent claims …

www.tandfonline.com [PDF]

… Received August 22, 1994; Revised January 17, 1996 Abstract. A variety of realistic economic considerations make jump-diffusion models of interest rate dynamics an appealing modeling choice to price interest-rate contingent claims …

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… Received August 22, 1994; Revised January 17, 1996 Abstract. A variety of realistic economic considerations make jump-diffusion models of interest rate dynamics an appealing modeling choice to price interest-rate contingent claims …

www.tandfonline.com [PDF]

… Received August 22, 1994; Revised January 17, 1996 Abstract. A variety of realistic economic considerations make jump-diffusion models of interest rate dynamics an appealing modeling choice to price interest-rate contingent claims …

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… Received August 22, 1994; Revised January 17, 1996 Abstract. A variety of realistic economic considerations make jump-diffusion models of interest rate dynamics an appealing modeling choice to price interest-rate contingent claims …

www.tandfonline.com [PDF]

… Received August 22, 1994; Revised January 17, 1996 Abstract. A variety of realistic economic considerations make jump-diffusion models of interest rate dynamics an appealing modeling choice to price interest-rate contingent claims …

www.dbpia.co.kr [PDF]

… Received August 22, 1994; Revised January 17, 1996 Abstract. A variety of realistic economic considerations make jump-diffusion models of interest rate dynamics an appealing modeling choice to price interest-rate contingent claims …

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Interest payable on a Z bond is added to the principal balance and becomes payable once claims on all prior bond classes have been satisfied.

Z bonds do not pay out any coupon payments while principal is being paid on earlier bonds.

The final tranche in a series of mortgage-backed securities that is the last one to receive payment.

Regular bonds pay interest semi-annually or annually, while zero coupon bonds do not.

Zero discount and deep discount are terms that are used interchangeably to describe these bonds.

Yes, both accrue interest rather than paying it out. Therefore, the final tranche is considered the most risky for CMO class structures.

Yes, there are different types.

A zero coupon bond has no coupons.

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