Zero coupon bonds, more commonly known as “strips” or “zeros”, are fixed income securities that unlike other bonds, pay no interest until maturity. This means that instead of paying semi-annual interest like other bonds, the interest is compounded throughout the life of the bond and is paid in full upon maturity. Zero coupon bonds are ideal long-term investments for people who have a specific situation, which calls for a specific amount of money to be acquired at a future date, mainly ten to twenty years in the future. These bonds offer a great variety of benefits that are attractive to investors who are looking for more of a long-term investment. They also pose a few drawbacks, but are outweighed by their advantages which make them a sound investment. Zero coupon municipal bonds combine the benefits of the zero coupon instrument with those of tax-exempt municipal securities and offer the following advantages: Low Minimum Investment The first thing that comes to mind when investing in zero coupon bonds is its low initial investment. Zeros are sold at a deep discount relative to other bonds and therefore can be purchased with a low minimum investment. Investors purchase zeros for much less than their face value, which is typically in increments of $5000, however, zero-coupon bonds with face values of $1000 are also sold. The greater the number of years a zero-coupon bond has until maturity, the less an investor has to pay for it. The reason of such a low initial investment is another benefit of zeros, compounded interest. The small initial dollar outlay makes zeros attractive investments for many investors. It allows investors to put aside a modest amount of money today and know exactly how much they will receive at a specific future date. Tax Advantages Another benefit of zero-coupon bonds is its possible tax advantages. Interest on municipal zero-coupon bonds is exempt from federal income taxes and, in many cases, free from state and local taxes. Because municipal zeros offer the benefit of compound interest free from federal taxes, they provide returns that are often much higher on a net basis than comparable taxable securities. ‘Zeros purchased prior to April 1993 and held to maturity are not subject to capital gains tax unless they are purchased at a price lower than the compound accreted value (CAV). The sale or excha... ... middle of paper ... ...e volatility of the bond. Zeros are extremely volatile investments. This means that if the interest rate changes, it can swing the price of the bond in either direction. However, this is only a problem if the bond is sold before maturity. If the bond is held to the mature date, the investor will receive the full face value. If the bond is sold before it matures, there could be a possibility that the investor could lose money. Another inconvenience that zeros offer is its possible tax charges. Although zeros don’t include any coupon payments because they pay no annual interest, the investor is still obligated to pay income tax on the interest he would of earned for the year even though he didn’t receive it. Of course there are ways around this if you invest in tax-exempt municipals where there are no charges. One more drawback of zeros is that they can be callable. This means that the issuer has the right to repurchase the bond back from the investor at any time before maturity. If the issuer repays the bond at a certain percentage rate, it can potentially lose money for the investor. You would also have to pay a capital gains tax if the IRS thinks you made more than you should.
...ve their advantage and disadvantage in regards their tax system; however, we can see that the state of Texas needs to find a better system to growth its tax revenue, they need to move to a progressive system, where there is a charge for income tax, but by putting a margin were only certain brackets pay the tax, and live exempt the people who makes $30,000.00 or less. This will improve the amount of income for the state, to help suicide certain causes, such as The Education system, Medicaid, and also help the Department of Transportation to pay old debts due to the construction and maintenance of new roads. This will help to stop the plan of considering bringing international companies to build new roads with the commitment of paying toll during the next fifty years, which is only going to benefit the private company, but not any changes in the revenue of the state.
The Zero does a great job of representing the claim that was presented. A good example would be when Constancia was getting ready to go to the mall with her friends: “My
... (as they were not taxed while contributing to the traditional IRA), this option still may have the greatest tax benefits in the future.
The case of Andrie Inc. v. State of Michigan involves the State of Michigan’s assessment of use tax for years in issue November 1, 1999 and ending December 31, 2004, and for the tax period January 1, 2004 and ending July 31, 2006. Andrie’s major customers include large oil companies which Andrie purchased fuel, supplies and fixed assets from retailers. The State of Michigan conducted an audit for the years in issue. Based on Andrie’s records, the State of Michigan assessed use tax on Andrie’s purchases where an invoice did not list sales tax as a separate line item. Andrie objected on the basis...
With respect to the underlying quality of the municipal bond, TOB sponsors (including Merrill Lynch) generally mandate that the TOB program can not carry any bonds in inventory related to the TOB program with ratings below AA- because the protection of principal is important to the investors.
The 'Secondary' of the 'Secondary' of the 'Secondary' of the 'Secondary' of the 'Secondary' of the 'Secondary' Convertible Bonds As Backdoor Equity Financing? Retrieved on June 12, 2006, from the World Wide Web at: http://www.financeprofessor.com/summaries/Stein1992ConvBond%20paper.htm. Jen, F, Choi, D, and Lee, S. (1997). Some Evidence on Why Companies Use Convertible Bonds. Journal of Applied Corporate Finance.
This weakens the expected return on investment for this alternative, and ultimately leads to its rejection.
There are other deductions that are associated with this plan. Among these are social security, medicare, federal unemployment and some other added taxes that are not declared. These simple plans have lower contribution limits. However, the non-profit organizations do not require higher costs for administration and therefore they can try the other plans. Yet, on...
The disadvantages of having no state income is that everything around people increases in price. Just because the state does not receive a percent from worker’s earnings, does not mean they do not find other ways to tax them. As a result the state imposes taxes through other ways to receive money. Their is higher property taxes, higher than average expenses, and less state funding. A study by Lincoln Institute of Land Policy says “Effective property tax rates on owner-occupied housing in Texas are the fourth-highest in the United States and about 58 percent above the median rate for all state.”
When states try to find ways to restrain from non-essential areas, unfunded federal mandates are at the top of the list. These mandates often force state and local governments to spend much more than necessary on everything from medical care to welfare to road building. A complex web of federal programs bind together the tree treasuries of the local, state, and federal government. As much as 25 percent of state budgets now comes from the federal government, and up to 60 percent of some state budgets is spent on joint federal-state programs.
Organizations that decide to issue bonds generally go through a series of steps. Discuss the six steps.
Nowadays, zero is still a mystery to people confusing humanity for thousands of years. The magical number, zero, mainly began its use as a placeholder in mathematics. As described in the following, “Between 700 and 300 B.C., the Babylonians started using their end-of-sentence symbol to show that a place was being skipped” (B&G, p.79). They did not write the symbol of “0” as a placeholder but instead an “end-of-sentence” symbol to represent (B&G, p. 79).
This is the rate of return (the discount rate) at which the net present value of the investment is zero, or that is the discount rate at which the discounted income from the project is equal to the investment costs
Present day zero is quite different from its previous forms. Many concepts have been passed down, and many have been forgotten. Zero is the only number that is neither positive of negative. It has no effect on any quantity. Zero is a number lower than one. It is considered an item that is empty. There are two common uses of zero: 1. an empty place indicator in a number system, 2. the number itself, zero. Zero exist everywhere; although it took many civilizations to establish it.
In making the taxable supply you will get something in return, which may be in the form of money or other than money.