PIK stands for Paid In Kind. This term describes bonds that are paid with:

• A. More bonds instead of cash
• B. Cash only
• C. Stock from a different company
• D. Reduced principal only

Answer: (A)

Payment-In-Kind means interest is paid with additional securities rather than cash. In this setup, the investor receives more bonds (or notes) instead of cash interest, so the outstanding principal grows over time as interest accrues in kind. This preserves the issuer’s cash flow but increases the amount owed to the investor in the future, often raising the overall yield and risk for the holder. That’s why the correct description is receiving more bonds instead of cash. Cash-only interest would be the standard arrangement, paying in cash; receiving stock from another company isn’t how PIK works, and reducing principal only doesn’t involve paying interest at all.