This bond combines the features of standard bonds, step-up bonds , and zero-coupon bonds. For example, a year bond may have a provision that coupon interest must start five years from the date of issuance. Because of the deferred-coupon period, this bond is conventionally priced at a deep discount to par, though it is not equal in magnitude to that of a zero-coupon bond. We enter 6 i and press f-NPV and get We consider this as an initial investment, so the cash flow diagram remains the same apart from an initial payment of instead of 0. Didn't find what you were looking for? Ask the community.
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Finance | Low Coupon Bond
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Message 8 of 9. This feature of the coupon bond could lead to tax evasions and frauds. These are bonds that do not make cash payments of interests through the duration of the bond but are instead issued as discounts to the maturity value of the bonds. The specific discount value is calculated to provide a certain rate of return at maturity when the bond is set to be redeemed for their full face value. Investors make money from bearer bond on their maturity. The interest is paid to them at the maturity of the bond.
The time required to reach maturity depends on whether the bond is a long-term or short-term investment.
Short-term bearer bonds are known as bills. In case the coupon bond is for a long period, from fifteen to twenty years then the investor gets paid their interest after a period of two decades.
These bonds are not a good option for someone looking for a steady flow of income. However, they are ideal for families who are looking into systematic investment plans. If you want a vacation home after your retirement, coupon bond is a good option. A coupon bond is a good way of increasing your income over a period of time. Coupon bonds are subjected to taxation in the US.
Hence they can be held in a tax-deferred retirement account in order to save investors on paying taxes on the future income. On top of this, if the US government entity—state or local issues a coupon bond, it is exempted from all taxes. Hence it has been proven that coupon bonds can be defined as the absence of interest payments for investors.
For families saving for the future or parents saving for the higher education of their children, coupon bonds have proved to be ideal.