R31 Non-Current Liabilities
Raise this quotient by a power equal to one divided by the number of accrual periods until maturity. Subtract one from the result, multiply by the number of accrual periods in a year and you have the YTM. The adjusted acquisition price of a zero-coupon note is initially equal to its purchase price at issue.
At the end of each accrual period, the period's accrued interest adds to the adjusted acquisition price. The accrued interest is the beginning adjusted acquisition price multiplied by the YTM. This is the imputed interest for the period. The Internal Revenue Service provides an example of the calculation.
The interest accrues semiannually, creating exactly 25 accrual periods of six months each. Your YTM is equal to 7. Your imputed interest in Year 1 is. Repeat every six months until the note matures.
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Factors Affecting the Price of a Bond
Skip to main content. Zero-Coupon Debt A zero-coupon bond or note pays no interest until its maturity date. Imputed Interest The adjusted acquisition price of a zero-coupon note is initially equal to its purchase price at issue. Example The Internal Revenue Service provides an example of the calculation. For example, if a bond pays 8 percent in two semiannual installments, the periodic rate is 4 percent.fonsuaseca.tk
Amortization of Bond Premium
Multiply the periodic interest rate by the face value for bonds that pay the interest directly to you. Find the original price of a zero-coupon bond.
Zero-coupon bonds are sold at a discount off the face value. The discount rate will be stated on the bond. Multiply the initial price of the zero-coupon bond by the periodic interest rate and add the result to the original price to find the value of the bond after the first interest-earning period, called a compounding interval. Repeat the above for each subsequent compounding interval, using the value of the bond at the end of the previous compounding interval. If you know the current value of a zero-coupon bond, you can skip calculating the interest payments that have accrued since the bond was issued.
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Current value is the value of the bond at the end of the most recent compounding period. Just multiply that current value by the periodic interest rate to calculate the interest payment. Series I bond interest rates are adjusted each May and November to compensate for inflation, so you need to look on the Treasury Direct website to find the current periodic interest rate before calculating the interest payment.
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He writes about business, personal finance and careers. Adkins holds master's degrees in history and sociology from Georgia State University. He became a member of the Society of Professional Journalists in How to Calculate Bond Interest Payments. Tips If you know the current value of a zero-coupon bond, you can skip calculating the interest payments that have accrued since the bond was issued.
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