- aint_tT fM(0, u) B(u, T) du int_tT fM(0, u)du. Many bonds make periodic interest payments during the life of the bond, and then when the bond matures, the principal is returned. If you have to wait three years to get your money back, youll expect a higher return than a bond that will mature in six months. Endalign* Moreover, we define the yield-to-maturity R(t, T) by beginalign* R(t, T) frac-ln P(t, T)T-t. The dealers obviously make a healthy profit on stripping bonds.
With the bond's deep discount, an investor can put up a small amount of money that can grow over many years. In the United States, a zero-coupon bond would have Original issue discount (OID) for tax purposes. At the end of the 20 years, the investor will receive 20,000. State or local government entity, the imputed interest is free.S. The imputed interest on the bond is subject to income tax, according to the Internal Revenue Service (IRS).
Looking at the formula, 100 would be F, 6 would be r, and t would be 5 years. A zero-coupon bond is a debt security that doesn't pay interest but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value. Bond Concepts: Bond, pricing;. Calculated using Investopedias, bond Price. Pricing, zero, coupon Bonds.
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