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How can I calculate the duration of bond with interest income tax?
Wiki User
∙ 8y ago
Coupon Rate:10.50%
Yearly Coupon Payment(times):12
Term to Maturity(years):3
Tax rate for interest income:10%
Current total value of the bond:65025
What should I do now ? Should ı use compound interest ?
Wiki User
∙ 8y ago
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When market interest rates exceed a bond's coupon rate the bond will?
When market interest rates exceed a bond's coupon rate, the bond will:
How can bonds issued by two companies paying same contractual interest rate be issued at different prices?
To calculate present value of the bond you also need to know market interest rate. If , for example these companies were issuing their bonds in the different time and market interest rate was different then bond could be sold at premium(the bond will cost more then its face value), par (same as face value), and discount (bond will cost less then face value.)
What is relationship between a bond coupon rate and its duration?
bond coupon rates and yield rates have very similar effects and a very similar relationship to duration, lemme explain, by first explain durations effects in relation to interest rates, then yields and finally you can surmise that relationship between yield rates will be the same as coupon rates Duration can be seen as the elasticity of the bond's price with respect to interest rates. When duration is 7, a 15 year bond will fall 7% in value if interest rates increase by 1%. In the data we've generated we can also determine the relationship between yields and duration by analyzing the change after a 50 basis point decrease in rates. The duration will rise as yields are lowered, and conversely a high coupon rate or high yield will result in lower durations. While a higher yield reduces the present value of all the bond's payments, it reduces the value of payments further in the future by a greater proportional amount. This amounts to a reduction in duration. Merck & Company's bond has the highest yield and therefore one would surmise that the duration for MRK should be lower than the other bonds, this is only true if all other variables are held equal (ceteris paribus). This is not the case. The bonds have wildly different coupons remaining. Eli Lilly's bond has a similar number of coupons remaining-suggesting a relatively good candidate for comparison-and a lower yield than MRK, leading one to expect LLY bond to have a higher duration than MRK. An astute financial student would discourage this comparison, citing that LLY exhibits the highest (7.125%) annual coupon rate, which would in turn reduce the duration. While comparisons between bonds will fail us due to their unique characteristics, it is easy to see the change when examining a single bond and the effect of a 50 basis point decrease in rates has on the bond's duration. Every single bond's duration rose, relative to itself before the basis change, as their yields were lowered. This helps prove our assumption of the inverse relationship between yield and duration.
Do you want a high or low interest rate in a savings bond?
If you are investing in a savings bond, you wish for it to have a high rate of interest. If you are selling savings bonds, you wish it to be at a low rate of interest.
What is the impact of interest rate movements on bond prices?
in closed economy the macro economic concept is that if interest rates increases people are want to deposit their money, in closed market if interest rate increases people want to put their bond
Why is duration of bond important?
Duration is the weighted average number of years necessary to recover the initial cost of the bond • It allows comparison of effective lives of bonds that differ in maturity, coupon. • It is used in bond management strategies particularly immunization. • Measures bond price sensitivity to interest rate movements, which is very important in any bond analysis Duration is a direct measure of interest rate risk: • The higher the duration, the higher the interest rate risk
What impact do changing interest rates have on the price of longterm bonds versus short term bonds?
For the same change in interest rates, a longer term bond will move more than a shorter term bond. The price change of a bond is base on the duration of the bond. The formula for calculating duration is complex. But in simple terms, the duration of a bond is the percentage change of the price of a bond for every 1% change in interest rates. For example, assume a 5 year Treasury bond has a duration of 4.0 and a 10 year Treasury bond has a duration of 7.5. If both interest rates go up one percentage point, the 5 year bond will decrease in price by 4.0% and the 10 year bond will decrease in price by 7.5%.
What is the journal entry for bond purchase with accrued interest?
Debit bondsDebit interest accruedCredit cash / bank
The mathematical link between a bond's price and interest rate change is the?
Modified Duration
Is interest income taxed when received or earned?
Interest income is considered taxable when earned. For example, if your savings account accrues interest, it is taxable at the time of accrual even if you are not utilizing the funds within the account. However, if you are accruing interest on a treasury bond that you have not yet cashed, the interest is not taxable until the bond is cashed and you receive the funds.
How do you calculate nominal interest rate?
Nominal interest, is the amount of interest on a loan or investment that does not take into account inflation; it's the amount of interest listed on the loan or bond.
Is the interest on New York City municipal bonds exempt from all the possible income taxes for a New York City resident?
Yes. For a NYC resident, municipal bond interest is exempt from all three possible income taxes.
What is the duration of James Bond Jr.?
The duration of James Bond Jr. is 1320.0 seconds.
Under what circumstances is a bond exempt from all taxes?
If the municipal bond is issued by the jurisdiction in which the bondholder resides, the interest is tax-exempt from both the federal government and the state government. If there is a local income tax, the interest is tax-exempt at this level, too.
What is the difference between interest rate risk and reinvestment rate risk?
Reinvestment risk When interest rates are declining, investors have to reinvest their interest income and any return of principal, whether scheduled or unscheduled, at lower prevailing rates.Interest rate risk When interest rates rise, bond prices fall; conversely, when rates decline, bond prices rise. The longer the time to a bond's maturity, the greater its interest rate risk.
Which of the following are income tax deductible items to a corporation Common stock dividends preffered stock dvidends retained earnings or Bond interest expenses?
Interest expenses are tax deductible.
How are interest on a bond calculated?
Know the bond's face value, then, find the bond's coupon interest rate at the time the bond was issued or bought, then, multiply the bond's face value by the coupon interest rate it had when issued, then, know when your bond's interest payments are made, finally, multiply the product of the bond's face value and interest rate by the number of months in between payments.
