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. Provision

    A legal clause or condition contained within a contract that ...
  2. Soft Call Provision

    A feature added to convertible fixed-income and debt securities. ...
  3. Premium

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

    The condition of the price of a bond that is lower than par. ...
  5. Accretive

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

    A term that describes interest that is considered to be paid ...
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 >>
  3. What is the difference between par value and face value?

    When referring to the value of financial instruments, there is no difference between par value and face value. Both terms ... Read Full Answer >>
  4. What does the Macaulay duration indicate about a bond?

    The Macaulay duration measures the present value weighted average maturity for a bond. It describes how sensitive a bond’s ... Read Full Answer >>
  5. What is Z-spread and option adjusted credit spread?

    A zero-volatility spread, or Z-spread, uses the zero-coupon rate curve to calculate the spread between assets of different ... Read Full Answer >>
  6. What is the difference between compounding interest and simple interest?

    Interest is the cost of borrowing money, where the borrower pays a fee to the owner for using the owner's money. The interest ... 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. Investing Basics

    Explaining Fixed Income

    A person living off a fixed income is usually a retiree receiving a fixed, steady monthly inflow of cash.
  4. Mutual Funds & ETFs

    Is the DSUM Yuan Fixed Income ETF a Good Bet?

    An an depth look at PowerShares Chinese Yuan Dim Sum Bond ETF and its risks.
  5. Trading Strategies

    Top 3 High Yield Stocks with Growth Potential

    High yield and growth potential don't often go hand in hand, except when it comes to these three stocks.
  6. Mutual Funds & ETFs

    Top Foreign Debt ETFs & Funds for Diversification

    Foreign fixed income options for investors seeking capital preservation and diversification
  7. Mutual Funds & ETFs

    Top 4 High-Yielding Preferred Stock ETFs

    ETFs offer diversification, a clear advantage. Preferred stock ETFs offer even more.
  8. Investing Basics

    What is a "Coupon"?

    In the financial world, “coupon” represents the interest rate on a bond.
  9. Stock Analysis

    Is it Time to Buy Floating Rate Bonds?

    The Fed’s awaited interest rate hike could finally be at hand. Are floating rate bonds the way to go?
  10. Investing Basics

    Treasury Inflation-Protected Securities (TIPS)

    Treasury inflation-protected securities are treasury securities that make adjustments for inflation as reflected in the Consumer Price Index.

You May Also Like

Hot Definitions
  1. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  2. Standard Error

    The standard deviation of the sampling distribution of a statistic. Standard error is a statistical term that measures the ...
  3. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
  4. Unearned Revenue

    When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can ...
  5. Trailing Twelve Months - TTM

    The timeframe of the past 12 months used for reporting financial figures. A company's trailing 12 months is a representation ...
Trading Center