July 2011
Beginner
288 pages
7h 22m
English
Content preview from BOND MATH: The Theory Behind the FormulasBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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Market Discount Bonds
Now consider another 4-year, annual payment corporate bond that also is priced to yield 4.182% on a pretax basis. This one has a low 1% coupon rate and trades at a much deeper discount than the 4% bond. Its price is 88.499 (percent of par value).
Assume that this 1% bond originally was issued after 1984 at par value (or with de minimis OID). This is an example of buying a seasoned bond at a market discount. Its yield has risen and its price has fallen since issuance, perhaps due to an increase in the credit risk of the issuer or perhaps due to higher inflation.
Assuming an ordinary income tax rate of 25% and a capital gains ...
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