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Bonds can provide passive income, some of which may be tax-free if you're investing in municipal bonds. The tax-equivalent yield formula can be a useful tool for comparing taxable and tax-free ...
The U.S. Treasury stopped issuing most paper savings bonds in 2012 (with the exception of taxpayers who use some of their tax refund to purchase paper bonds), but they never expire and there’s ...
The price you pay for a bond may be different from its face value, and will change over the life of the bond, depending on factors like the bond’s time to maturity and the interest rate environment.
The daily portion of the discount uses a compounded interest formula with the principal recalculated every six months. The following table illustrates how to calculate the original issue discount for a $7,462 bond with a $10,000 repayment and a three-year maturity date: [2]
Duration is a linear measure of how the price of a bond changes in response to interest rate changes. It is approximately equal to the percentage change in price for a given change in yield, and may be thought of as the elasticity of the bond's price with respect to discount rates. For example, for small interest rate changes, the duration is ...
What happens in the meantime? Suppose that over the first 10 years of the holding period, interest rates decline, and the yield-to-maturity on the bond falls to 7%. With 20 years remaining to maturity, the price of the bond will be 100/1.07 20, or $25.84. Even though the yield-to-maturity for the remaining life of the bond is just 7%, and the ...
Understanding the inverse relationship between bond prices and interest rates can be a little confusing for new investors. However, taking an in-depth look at the various characteristics of bonds ...
The formula for calculating 30-day yield is specified by the U.S. Securities and Exchange Commission (SEC). [1] The formula translates the bond fund's current portfolio income into a standardized yield for reporting and comparison purposes. A bond fund's 30-day yield may appear in the fund's "Statement of Additional Information (SAI)" in its ...
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