- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 2. Fixed-Income Cash Flows and Types
- Subject 1. Fixed-Income Cash Flow Structures
CFA Practice Question
The annual interest expense for a fixed rate serial coupon bond issue will ______
B. decrease in years subsequent to repayment of blocks of securities in the series.
C. increase in years prior to repayment of blocks of securities in the series.
D. decrease in years prior to repayment of blocks of securities in the series.
A. increase each year through the maturity date.
B. decrease in years subsequent to repayment of blocks of securities in the series.
C. increase in years prior to repayment of blocks of securities in the series.
D. decrease in years prior to repayment of blocks of securities in the series.
Correct Answer: B
Part of the original principal of a serial bond is repaid as each block of securities in the series reaches its maturity date.
User Contributed Comments 4
| User | Comment |
|---|---|
| johntan1979 | Why after? Why not before repayment? |
| robbiecow | Serial bonds are sold with staggered maturities, so imagine you have to pay interest on all bonds plus par for the first one before the maturity of the first bond, then for the next payment the interest will be lower because you're paying interest on fewer bonds. |
| khalifa92 | after the prepayments, the sum principal owed decreases which then decreases the amount we apply the rate to find the coupon payment. |
| sshetty2 | interest expense grrrrr i thought it said rate |