what is a bullet bond 
a bullet bond is a debt investment whose entire principal value is paid in one lump sum on its maturity date rather than amortized over its lifetime bullet bonds cannot be redeemed early by their issuer which means they are non callable bullet bonds issued by stable governments typically pay a relatively low rate of interest due to the negligible risk that the lender will default on that lump sum payment a corporate bullet bond may have to pay a higher interest rate if the corporation has a less than stellar credit rating in any case bullet bonds generally pay less than comparable callable bonds because the bullet bond does not give the lender the option of buying it back if interest rates change understanding bullet bondsboth corporations and governments issue bullet bonds in a variety of maturities from short to long term a portfolio made up of bullet bonds is generally referred to as a bullet portfolio a bullet bond is generally considered riskier to its issuer than an amortizing bond because it obliges the issuer to repay the entire amount on a single date rather than in a series of smaller repayments over time as a result issuers who are relatively new to the market or who have less than excellent credit ratings may attract more investors with an amortizing bond than with a bullet bond typically bullet bonds are more expensive for the investor to purchase compared to an equivalent callable bond since the investor is protected against a bond call if interest rates fall a bullet is a one time lump sum repayment of an outstanding loan made by the borrower bullet bonds vs amortizing bondsbullet bonds differ from amortizing bonds in their method of payment amortized bonds are repaid in regular scheduled payments that include both interest and part of the principal in this way the loan is entirely repaid at its maturity date in contrast bullet bonds may require small interest only payments or no payments at all until the maturity date on that date the entire loan plus any remaining accrued interest must be repaid example of a bullet bondpricing a bullet bond is straightforward first the total payments for each period must be calculated and then discounted to a present value using the following formula 