BOND MATH: The Theory Behind the Formulas

Conclusion

I recall being told many years ago that everything interesting in finance boils down to either options or taxes. Like most overstatements, there is no doubt some truth there. But in my experience, bond taxation is often given short shrift in investments and fixed-income textbooks. Perhaps an indication of this reluctance to deal carefully with taxation is that the widely used Bloomberg Yield Analysis page has reported misleading results for the projected after-tax rates of return on some market discount bonds, at least for U.S. investors.

Now on to yield curve analysis, where we predictably will neglect tax effects.