Discount and premium bonds
How can I determine whether to invest in premium or discount bonds?
Calculating the bond premium or discount for trading bonds is more complex. It requires issuers to measure the present value of the payments from the bond using the market interest rate. Usually, issuers can predict whether this calculation will result in a bond premium or discount.
What is the difference between premium and discount bonds?
Bonds can become premium or discount bonds. They could trade above or below their par value while bond traders attempt to make money trading these yet-to-mature bonds. A premium bond trades above its issue price. This is called its par value. A discount bond does the opposite.
What is the benefit of investing in premium bonds?
A premium bond is one for which the market price of the bond is higher than the face value. If the bond's stated interest rate is greater than those expected by the current bond market, this bond will be an attractive option for investors.
[PDF File]Tax and Liquidity Considerations for Buying Discount Bonds
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Investors need to understand the potential tax implications from buying bonds at significant discounts to par, as well as the potential for these bonds to have less liquidity than bonds trading around par or at a premium, which means above par.
[PDF File]Tax Treatment of Bond Premium and Discount - Amazon S3
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Below is a summary of the tax rules that are currently in effect for bonds purchased at a discount or premium. Original Issue Discount (OID) Investors purchasing a bond with OID are required to gradually recognize the difference between their purchase price and the bond’s maturity value as taxable income over the life of the bond.
DISCOUNT AND PREMIUM BONDS: DEALING WITH THE TAX ISSUES
issue discount, we must point out that certain debt instruments are exempt from the rules requiring recognition of income, including: •Original issue discount municipal bonds (the exemption does not cover “stripped” tax-exempt obligations); •U.S. savings bonds; •Debt instruments with maturities of one year or less; and
[PDF File]Corporate cost of debt: the issue of premium or discount bonds
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This paper bridges finance theory with accounting practice to fully include the effect of discount or premium amortization on the cost of debt capital to a corporation and extends material presented in popular finance and accounting textbooks. Keywords: Cost of debt, bonds, capital, amortization, premium, discount.
Guide to Bond Premium and Market Discount
Bond holders’ Forms 1099-B (regarding sales proceeds and tax basis) and 1099-INT/OID (regarding interest income) often reflect bond premium and market discount-related information. The level of completeness and accuracy of the Form 1099 information, however, may vary.
[PDF File]Premium-Discount Formula and Other Bond Pricing Formulas
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The formula and selling at a premium Assignment: All the examples in section 6.2! Thepremium-discount pricing formula for bondsreads as P = C(g j)a n j + C where C is the redemption amount, g is the modi ed coupon rate, j is the e ective yied rate per coupon period, and n is the number of coupons. If P > C; we say that the bondsells at a premium
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