ECON 2560 Lecture Notes - Capital Gain, Current Yield, European Route E6
9 Jul 2014
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Note: unless otherwise stated, assume all bonds have ,000 face (par) value. Coupon payment = . 08 x 1000 = . Coupon rate = / = . 08 = 8% Current yield = / = . 0842 = 8. 42% [enter in the calculator: n = 6; pv= -950; fv = 1000; pmt = 80] Coupon payment = interest = . 05 1000 = 50. Capital gain = 1100 1000 = 100. Rate of return = = = . 15 = 15% Tax on interest received = tax rate interest = . 3 50 = 15. After-tax interest received = interest tax = 50 15 = 35. After-tax interest received = (1 tax rate) interest = (1 . 3) 50 = 35. Tax on capital gain = . 5 . 3 100 = 15. After-tax capital gain = 100 15 = 85. After-tax capital gain = (1 tax rate) capital gain = (1 . 5 . 3) 100 = 85.
