A conventional bond that pays the face value (redemption) at a single date, rather than spreading the payment of which over time. By confining redemption to a single point in time, a bullet bond creates “lumpiness” in the redemption profile, and increases the risk of repayment. As such, this bond involves a bullet payment of principal as it repays on maturity the entire nominal sum initially borrowed by an issuer. That is why vanilla bonds are sometimes known as bullet bonds.
Bullet bonds are neither callable nor puttable and make regular interest payments over time to maturity. The interest on a bullet bond is lower than that on a callable bond, since the investor (holder) is protected against early redemption calls if interest rates decline.
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