imputed interest on the bond is subject to income tax, according to the Internal Revenue Service (IRS). P its face value (also called maturity value). For example, an investor that purchases a bond at a discount for 920 will receive 1,000. For the sake of uniformity in valuation, RBI has asked Banks to use the prices / YTMs released by fimmda every month for valuation of their securities. . The par or face value of a corporate bond is usually stated as 1,000. Banks in India are required to value their assets at the end of the each quarter at least. . If the interest earnings are spent rather than reinvested, the return will be even lower. .
Sometimes normal coupon-paying bonds are broken down into their principal and coupon components such that each payment is a coupon bond in itself. The following table gives an indication between the YTM and current yield, when bonds are"d at discount or at a premium or at par :-, bond Selling. Since future interest rates are unknown, YTM must assume a reinvestment rate, and it uses the YTM rate itself. . YTM and the price of the Bonds have inverse relations.e. Par Value, coupon Rate Current Yield YTM, thus, the YTM will be greater than the current yield when the bond is selling at a discount and will be less if it is selling at a premium. Investors can choose zero coupon bonds that are issued from a variety of sources, including the.S. However, they are allowed to write back the depreciation provided in the previous year. Calculating Price, the price of a zero coupon bond can be calculated as: Price M / (1 r)n where M maturity date r required rate of interest n number of years until maturity. At the end of the 20 years, the investor will receive 20,000. Most zero coupon bonds trade on the major exchanges. The 80 return plus coupon payments received on the bond is the investor's earnings or return for holding the bond.