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Income bonds

• Bonds that pay interest only when earnings are available.

• Refer to securities which promise to repay the principal when due. However, these bonds differ from other bonds in that they promise to pay interest only when it is earned. This type of bond is verisimilar to many kinds of preferred stock. However, an advantage can be the tax deductibility of the interest charge when paid versus a preferred dividend payment. These bonds are sometimes known as Adjustment Bonds. The quality of these bonds generally is not as good as investment grade issues because there is an additional contingency on the payment of interest.

 
 

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