What is a Deferred Interest Bond? A Comprehensive Legal Overview
Definition & Meaning
A deferred interest bond is a type of bond where the interest is not paid out regularly but is instead accumulated and paid at a later date. This means that investors do not receive periodic interest payments but will receive the total amount of interest along with the principal when the bond matures. A common example of a deferred interest bond is a zero-coupon bond, which pays both interest and principal at maturity. These bonds tend to have more volatile market prices compared to bonds that provide regular interest payments.
Legal Use & context
Deferred interest bonds are primarily used in the financial and investment sectors. Legal professionals may encounter these bonds in contexts involving securities regulation, investment contracts, and tax implications. Understanding the nature of these bonds is essential for compliance with federal and state securities laws. Users can manage some aspects of investing in these bonds using legal templates provided by services like US Legal Forms.
Real-world examples
Here are a couple of examples of abatement:
Example 1: An investor purchases a zero-coupon bond with a face value of $1,000 that matures in ten years. The bond is sold at a discount, and the investor will receive the full $1,000 at maturity, along with the accumulated interest.
Example 2: A company issues deferred interest bonds to raise capital, promising to pay back investors with interest at the end of a five-year term. (hypothetical example)