Purchase Solution

Interest Income on a zero coupon bond

Not what you're looking for?

Ask Custom Question

You buy a zero coupon bond at the beginning of the year that has a face value of $1,000, a YTM of 7%, and 25 years to maturity. If you hold the bond for the entire year, how much in interest income will you have to declare on your tax return?

Purchase this Solution
Solution Summary

This solution computes the interest income on a zero coupon bond.

Solution Preview

You buy a zero coupon bond at the beginning of the year that has a face value of $1,000, a YTM of 7%, and 25 years to maturity. If you hold the bond for the entire year, how much in interest income will you have to ...

Purchase this Solution
Free BrainMass Quizzes
Introduction to Finance

This quiz test introductory finance topics.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

View More Free Quizzes
Related BrainMass Solutions

  • Zero Coupon Bond

    The way in which the yearly interest on a zero coupon bond is calculated is governed by tax law. Before 1982, corporations could calculate the interest deduction on a straight-line basis.

  • Zero coupon bond

    If you hold the bond for the entire year, how much in interest income will you have to declare on your tax return? One thing you need to know about zero coupon bond is that it does not pay interest.

  • Zero coupon bond

    = $8.00 The solution explains how to calculate the amount of tax to be paid on a zero coupon bond interest income.

  • Yield to maturity calculations for bonds

    To see this, consider a zero coupon bond. Since zeros pay no coupon, the current yield is zero because there is no interest income.

  • International exchange problem

    Spot ex rate is $2.0609/bp and one year forward rate is $2.0403/bp  a} calculate one yr interest rates in US and U.K  For US: Market Value of zero coupon Bond $950.57 Face value of zero coupon rate $1,000

  • Zero Coupon Bonds: Calculating Price, Interest, and Value

    276849 Zero Coupon Bonds: Calculating Price, Interest, and Value 1) You purchased a zero-coupon bond that has a face value of $1,000, five years to maturity and a yield to maturity of 7.3%.

  • Bonds payable of Solomon Sales Co.

    A zero-coupon bond is a bond that is bought at a deep discount from its face value. It pays zero annual interest during its life, but pays full face value on its maturity date.

  • Sinking funds and convertible bonds

    Municipal zero coupon bonds are free from federal income tax and may be free of state tax. (2.) Zero coupon bonds compliment retirement accounts where they grow tax free from tax on current interest. (3.)

  • Zero Coupon Bond's worth at X%

    This is because the interest on a zero-coupon bond is equal to the difference between the purchase price and maturity value, but we need a way to compare a zero-coupon bond to a coupon bond, so the 6% required yield must be adjusted to the equivalent

View More Related Solutions