Bunny Bond

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DEFINITION of 'Bunny Bond'

A type of bond that offers investors the option to reinvest coupon payments into additional bonds with the same coupon and maturity.

Also known as "multiplier bond" or "guaranteed coupon reinvestment bond."

INVESTOPEDIA EXPLAINS 'Bunny Bond'

Bunny bonds are an effective way to protect against reinvestment risk, which arises from the possibility that interest rates will drop in the future. With a normal bond, investors are exposed to the risk of having to reinvest their coupons at a lower interest rate. If an investor chooses to reinvest all cash coupons back into the bond he is currently holding, it behaves similarly to a zero-coupon bond, as the investor receives no cash flow until maturity.

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RELATED FAQS
  1. What is the difference between a zero-coupon bond and a regular bond?

    The difference between a zero-coupon bond and a regular bond is that a zero-coupon bond does not pay coupons, or interest ... Read Full Answer >>
  2. When should a company consider issuing a corporate bond vs. issuing stock?

    A company should consider issuing a corporate bond versus issuing stock after it has already exhausted all internal forms ... Read Full Answer >>
  3. How is a corporate bond taxed?

    A corporate bond is taxed through the interest earned on the bond, through capital gains or losses earned in the early sale ... Read Full Answer >>
  4. How do I use the principles of convexity to compare bonds?

    Convexity, along with another principle known as duration, is an important consideration when assessing bond risk. All else ... Read Full Answer >>
  5. What is affected by the interest rate risk?

    Interest rate risk is the risk that arises when the absolute level of interest rates fluctuate. Interest rate risk directly ... Read Full Answer >>
  6. How can I calculate the carrying value of a bond?

    The carrying value of a bond is the net amount between the bond’s face value and any unamortized premiums or minus any amortized ... Read Full Answer >>
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