Howdy, Stranger!
It looks like you're new here. If you want to get involved, click one of these buttons!
Quick Links
Bonds
I have read discussions here that are related to bonds, and would like to add a bit to it.
Bonds are released at par value, say $100 per bond. They pay either fixed or variable interest (coupon). On expiry, we get our investment back ($100). Now, some bonds repay the principal in addition to the coupon. So every payment has two components - interest and principal. Similar really to a mortgage. Every time I get paid the coupon, attached is a repayment of the principal, say $5. This is not Capital Return in a classic sense - while I retain the same number of bonds, their face value reduces with each repayment of the principal. (again, like a loan repayment). So at the end, I will get back my $100 par, less total amount repaid thus far. Using Capital Return will lower my cost base and show capital gain, which I don't believe would be correct. Entering a small sale (at par) with every payment would maintain the original face value of the bond and the current investment value, but I am not sure what other ripple effect it will have in other tables. Lowering the price would introduce capital loss, also incorrect. Comments would be appreciated, thanks, Peter
Bonds are released at par value, say $100 per bond. They pay either fixed or variable interest (coupon). On expiry, we get our investment back ($100). Now, some bonds repay the principal in addition to the coupon. So every payment has two components - interest and principal. Similar really to a mortgage. Every time I get paid the coupon, attached is a repayment of the principal, say $5. This is not Capital Return in a classic sense - while I retain the same number of bonds, their face value reduces with each repayment of the principal. (again, like a loan repayment). So at the end, I will get back my $100 par, less total amount repaid thus far. Using Capital Return will lower my cost base and show capital gain, which I don't believe would be correct. Entering a small sale (at par) with every payment would maintain the original face value of the bond and the current investment value, but I am not sure what other ripple effect it will have in other tables. Lowering the price would introduce capital loss, also incorrect. Comments would be appreciated, thanks, Peter
Comments