LeoGlossary: Capital Appreciation Bonds

Capital Appreciation Bonds (CAB) do not pay periodic interest to bondholders. Like zero-coupon bonds, capital appreciation bonds are sold for substantially less than their par value, then pay out their full value at maturity.

For example, a 10-year, $5,000 capital appreciation bond may sell for $3,500. Although the bondholder will not receive periodic interest over the ensuing 10 years, it will receive the full $5,000 when the bond matures.

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