A plain vanilla bond is a fixed-term, fixed-rate and registered bond. An example is presented in Box.
Figure: example of cash flows of plain vanilla bond. 10% coupon, interest payable six-monthly in arrears, due 1 February 2020
Assuming this bond is purchased on 1 February 2017 its cash flows are:
- LCC50 000 every 6 months until maturity including on the maturity date (0.10 x LCC1 000 000 / 2).
- LCC1 000 000 (the nominal / face value of the bond).
These characteristics of the bond do not change during the life of the bond. All that changes is the market rate on the bond, which brings about a change in the price of the bond.
