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Add-on interest
Definition
This is a procedure for determining interest on a bond or loan in which the interest is added onto the face value of the bond, loan or contract.
Using the term Add-on interest :
Instead of paying regular interest payments out to the holder of the bond or loan, add-on interest is added to the overall face value of the instrument.
Pay Special Attention To :
By increasing the face value of the bond or loan with the addition of interest, you are increasing the amount due on the instrument and may in the long run increase your interest rate risk.
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Related terms
interest rate risk , duration
