TeachMeFinance.com - explain step-up bond
step-up bond -- a bond that pays the investor an initial above-market yield for a short, noncall period and then, if not called, steps up to a predetermined higher coupon rate. The bond may include a series of step-up rates and is callable at every step-up date. For example, the initial rate may be 5 percent, increasing to 6 percent after two years, and 7 percent after four years. The bond is designed to protect the issuer against falling market interest rates . If interest rates fall, the issuer can call the bond. If interest rates rise to levels equal to or higher than the step-up rate, the issuer would likely not call the bond. A step-up bond is a type of structured note.
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