Accumulation bonds are the bonds where the interest keeps accumulating over the face value of the bond but it is not paid until the bond actually matures. If someone is using accumulation bonds they don’t need to pay coupon payments of interest that are paid usually semi annually, or quarterly as people has to pay with a number of different bonds. Due to their specialty these binds are also known as accrual bonds. Another mode of defining these accumulation bonds is that these are the bonds that are issued on original issue discount. This is for sure that accumulation bonds are always sold with an original issue discount that means these bonds are issued at a lower value as compared to their face value. IRS also considers the issue discount of these types of bonds as a type of interest. This means that the bond holder is not receiving interest coupon payments but that doesn’t mean the bond holder is not going to pay interest as it is accumulating over the accumulation bonds. This interest can be reported as interest income at the time of the maturity of the bonds. This income is reported on the tax return of the bondholder’s income each year. Most of the investors like to use accumulation bonds as a part of their financial plans although they know that they know the exact amount of their investment will be received in somewhere in future when the bonds matures and they are not going to enjoy interim cash flows as with the other types of bonds.
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