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Z-Bond

What is 'Z-Bond'

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.

Explaining 'Z-Bond'

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.


Further Reading


Exact solutions for bond and option prices with systematic jump risk
link.springer.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 …

Efficacy of ceramic repair material on the bond strength of composite resin to zirconia ceramicEfficacy of ceramic repair material on the bond strength of composite resin to zirconia ceramic
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 …

Effects of speaker variability and noise on Mandarin tone identification by native and non-native listenersEffects of speaker variability and noise on Mandarin tone identification by native and non-native listeners
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 …

Bond ratings with artificial neural networks and econometric modelsBond ratings with artificial neural networks and econometric models
search.proquest.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 …

Financial openness and financial development: An analysis using indicesFinancial openness and financial development: An analysis using indices
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 …

The influence of profitability and liquidity to bond rating and the impact on the bond yieldThe influence of profitability and liquidity to bond rating and the impact on the bond yield
www.ssbfnet.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 …

Competition between σ-hole pnicogen bond and π-hole tetrel bond in complexes of CFCompetition between σ-hole pnicogen bond and π-hole tetrel bond in complexes of CF
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 …

The Relationship between Default Risk, Size and Financial Performance from Korean FirmsThe Relationship between Default Risk, Size and Financial Performance from Korean Firms
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 …



Q&A About Z-Bond


How are interest payments used when it comes to Z-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.

What does Z-bonds pay out?

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

What is a Z-bond?

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

What is the difference between a regular and a zero coupon bond?

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

How are they called interchangeably?

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

Are there any similarities between zero coupon bonds and Z-Bonds?

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

Are there different types of zero coupon bonds?

Yes, there are different types.

What does a zero coupon bond have?

A zero coupon bond has no coupons.

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