a bond that is characterized by a fixed periodic payment schedule that reduces the bond's outstanding principal amount to zero by the maturity date is best described as a:
A) bullet bond.
B) plain vanilla bond.
C) fully amortized bond.

Question

Quizplus · Accepted Answer

A bond that has a fixed periodic payment schedule that reduces the bond's outstanding principal amount to zero by the maturity date is called a fully amortized bond. This means that the borrower will make regular payments that include both principal and interest, with each payment reducing the outstanding balance until it is fully paid off at maturity. A bullet bond, on the other hand, is a bond that pays out the entire principal amount at maturity rather than gradually reducing it over time through regular payments. A plain vanilla bond is a simple, standard bond with no special features or options. While a fully amortized bond may be a type of plain vanilla bond, not all plain vanilla bonds are fully amortized.

A Bond That Is Characterized by a Fixed Periodic Payment