Targeted Accrual Redemption Note - TARN


DEFINITION of 'Targeted Accrual Redemption Note - TARN'

An investment vehicle, calculated based on a variation of the LIBOR formula, which provides a guaranteed sum of coupons. Once the coupons you've recieved reaches the target cap, the note will be redeemed and you will be paid the par value of the note. Targeted Accrual Redemption Notes (TARN) typically have coupon payments that are based on an inverse floating LIBOR calculation. Thus, they may have good performance in the short-term if interest rates decrease, but may also underperform if interest rates rise.

BREAKING DOWN 'Targeted Accrual Redemption Note - TARN'

One of the more distinguishing features of a TARN is the possibility of an early termination. It is based on a predetermined accumulation of the coupons. Once that sum is reached, the investor receives the final payment of par and the contract ends.

  1. Coupon

    The interest rate stated on a bond when it's issued. The coupon ...
  2. LIBOR

    LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate ...
  3. Redemption

    The return of an investor's principal in a fixed income security, ...
  4. Note

    A financial security that generally has a longer term than a ...
  5. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  6. Short Term

    1. In general, holding an asset for short period of time. 2. ...
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