Fixed Income Doubt

Posts: 3
Joined: Mon Apr 02, 2012 7:59 pm

Fixed Income Doubt

Postby chirag.gada » Mon Apr 02, 2012 8:04 pm

Hello everyone,

I was going through the course material, and came across these 2 terms:
1. Zero Coupon Bonds
2. Repurchase Agreement

In both cases:
a. the institution issue securities, and
b. the redemption value is higher then the issued amount.

then what exactly is the difference between these 2?


Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

Re: Fixed Income Doubt

Postby content.pristine » Wed Apr 11, 2012 4:46 pm

Hi Chirag,

Zero Coupon Bonds and Repurchase Agreements are two completely different concepts.
Let me take them up one at a time.

Zero Coupons
They are bonds issued by companies to generate cash.

Repurchase Agreement
Here, imagine you want to borrow some money, like $1 M for example, for a short period of time, say a week. Say you have a bond also worth around $1M.
You have 2 options to do so:
1) Borrowing $1M directly from the market by issuing a short term bond yourself
2) Borrow $1M by taking a loan from some other party and giving them the bond as collateral. Since the other party has the bond as collateral, this loan would be issued with a comparatively lower interest rate.
The second situation here refers to a Repurchase Agreement.
In a repurchase agreement, you agree to sell the bond at a certain price(usually market price), and buy it back at a higher predetermined price. The difference between these two prices is the interest on the loan.

I hope this helps 8-)

Return to “CFA Level I”



Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to and we will rectify it.