Consider a hypothetical Payment in Kind (PIK) bond of XYZ Corporation. The bond has 2 years to maturity, a face value of $1000, and has an annual coupon rate of 10%. Coupons are paid annually. XYZ has the right to pay the first coupon either in cash or in additional PIK bonds - i.e., the bond holder may get either S100 in cash or 10 additional PIK bonds for every 100 bonds she has. (If additional PIK bonds were paid as the first coupon, in year 2 the bond holder would receive the 1 year coupon as well as the corresponding principal, according to the amount of additional PIK bonds paid.) The second year coupon must however be paid in cash along with the face value, and everything clears at the end of two years