Compound Accreted Value - CAV

AAA

DEFINITION of 'Compound Accreted Value - CAV'

A measure of the theoretical value of a zero-coupon bond at any given point in time. Because there are no interest payments like there are with traditional bonds, the interest of a zero-coupon bond accrues until maturity. Therefore, the CAV can be calculated by adding all of the interest earned up to a given point in time to the original price.

INVESTOPEDIA EXPLAINS 'Compound Accreted Value - CAV'

Calculating a zero-coupon bond's CAV becomes important if the bond carries a call provision. This is because call provisions for zero-coupon bonds are typically linked to the bond's CAV. The provision will usually stipulate that the issuer can call the bond on a specific date at a price that is a premium to the bond's CAV.

A zero-coupon bond is trading at a premium if it costs more than its CAV at that specific point in time. Conversely, the zero-coupon bond is trading at a discount if it costs less than its CAV.

RELATED TERMS
  1. Premium

    1. The total cost of an option. 2. The difference between the ...
  2. Discount

    The condition of the price of a bond that is lower than par. ...
  3. Zero-Coupon Bond

    A debt security that doesn't pay interest (a coupon) but is traded ...
  4. Accretive

    The process of accretion, which is the growth or increase by ...
  5. Imputed Interest

    A term that describes interest that is considered to be paid ...
  6. Accretion

    1. Asset growth through addition or expansion. 2. In reference ...
RELATED FAQS
  1. How does an investor make money on bonds?

    Bonds are part of the family of investments known as fixed-income securities. These securities are debt obligations, meaning ... Read Full Answer >>
  2. What is a stripped bond?

    The quick answer to this question is that a stripped bond is a bond that has had its main components broken up into a zero-coupon ... Read Full Answer >>
Related Articles
  1. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  2. Bonds & Fixed Income

    Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.
  3. Bonds & Fixed Income

    Should Junk Bond ETFs Be a Part of Your Portfolio?

    Should junk bonds be a part of your portfolio? Here's what you need to know.
  4. Professionals

    Vanguard Readies Muni Bond ETF

    Vanguard is set to roll out a muni bond ETF, the firm's first.
  5. Mutual Funds & ETFs

    Is the TLT ETF a Good Bet for the Long Run?

    Is the iShares 20+ Year Treasury Bond ETF (TLT) a good bet for the long run?
  6. Bonds & Fixed Income

    African Equities vs. Bonds: Risks and Rewards

    A look at the risks and rewards of exposure to African equities vs. bonds.
  7. Bonds & Fixed Income

    How Rate Hikes Will Affect Your Investments?

    An interest rate hike by the Fed, which will happen either during their June or September meeting, could impact your fixed income investments.
  8. Professionals

    Is Now the Time for Junk Bonds?

    A bet on high-yield bonds is a bet that the global economy will continue to improve...but not too much.
  9. Mutual Funds & ETFs

    Preferred Stock ETFs: Are They Right for You?

    Considering preferred stock ETFs? Here's a look at their pros and cons.
  10. Mutual Funds & ETFs

    PIMCO vs. BlackRock: Weighing Mega Fund Managers

    A look at the world's biggest bond manager and the world's largest asset manager.

You May Also Like

Hot Definitions
  1. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  2. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  3. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  4. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  6. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
Trading Center