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What is a Bunny Bond?
A bunny bond is a type of bond or an investment that offers investors the option to reinvest payments or dividends. The investors can reinvest the payment to secure additional bonds. Usually, bonds with the same coupon and maturity are reinvested in. However, this does not mean that investors who prefer to receive their dividends in cash cannot do so. This is why it gives an option, investors can choose to receive cash payment or recycle the dividends to buy additional bonds. A bunny bond is also referred to as a multiplier bond or a guaranteed coupon reinvestment bond.
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How Does a Bunny Bond Work?
A reliable avenue through which investors recycle coupon payments is a bunny bond. Investors can secure additional bonds. This offer is not compulsory, it is an option, investors can decide whether or not to reinvest their coupon payments. Investors who seeks protection from reinvestment risk or lower interest rates do find bunny bonds as appealing arrangements. Reinvestment risk has impacts on the interest rates of bonds, interest rates decline often amount to loss for investors. A bond's yield to maturity (YTM) can also be affected by reinvestment risk. The calculation of YTM for any bond is based on the belief that future coupon payments will be reinvested at higher rates that when it was initially purchased. However, reinvestment risk is one that holds that future coupons will be reinvested at a lower interest rate than when the bond was originally purchased.
Academic Research on Bunny Bond
- The weighted average cost of capital is not quite right: Reply to M. Pierru, Miller, R. A. (2009). The Quarterly Review of Economics and Finance, 49(3), 1213-1218.
- Comment on Do Informational Frictions Justify Federal Credit Programs?, Davidson, P. (1994). Journal of Money, Credit and Banking, 26(3), 545-551.
- Development of leadership within the university and beyond: Challenges to faculty and their development, Triolo, P. K., Pozehl, B. J., & Mahaffey, T. L. (1997). Journal of Professional Nursing, 13(3), 149-153.
- Marketable Debt Securities in the International Financial Markets, Buljevich, E. C., & Park, Y. S. (1999). Project Financing and the International Financial Markets, 35-54. What money can't buy: the moral limits of markets, Sandel, M. J. (2000). Tanner Lectures on Human Values, 21, 87-122.
- Can Energy Markets Be Trusted-The Effect of the Rise and Fall of Enron on Energy Markets, Weaver, J. L. (2004). Hous. Bus. & Tax LJ, 4, 1. The Financial Reporter, Cramer, E., Horbatt, W. R., Freedman, M. J., Enoch, J. F., Solow, D. D., Hay, L. J., ... & Morrison, J. D. (2004). The Financial Reporter.
- Explaining the demand for life annuities in the australian market, Ganegoda, A., & Bateman, H. (2007). Centre for Pensions and Superannuation.
- Investment consultants and institutional corruption, Youngdahl, J. (2013).