Bonds can be a profitable and reliable long-term investment. The income that corporate bonds bring to their holder is called coupon. It consists of the accumulated income and income accrued by the organization during the ownership of the security. For practical purposes, you need to know the principles of determining this characteristic of a bond and be able to calculate it yourself.
It is necessary
- - bond;
- - calculator;
- - pencil;
- - paper.
Instructions
Step 1
Understand the difference between accrued coupon income and accrued income. The first type of income is formed even before the bond became the property of the organization, and is indicated in the document attached to the purchased bond. The amount of accrued income generated during the holding of a security should be calculated.
Step 2
Determine how relevant and timely the calculation is. It should be carried out either according to the results of each month during which the holder owned the bond, or according to the results of the purchase and sale of the security. In some cases, it is recommended that the calculation be made after the relevant payments are made by the issuer of the bond.
Step 3
Select the method for calculating coupon yield. Direct account allows you to determine income based on the period of holding a security in a particular month and the data determined during the issue. The second method is taken from the practice of settlements for state and municipal securities. In this case, the coupon yield is determined based on the data on the amount of income accrued at the end of each reporting month.
Step 4
To calculate income using the direct account method, use the following formula: Dk = No * CK / N * n, where Dc is the coupon yield for the month; But is the face value of the security; CK is the coupon rate; N is the number of days in the period for which the coupon rate is set.; n - the number of days in a month when the bond was owned by the holder.
Step 5
When calculating for tax purposes, use the formula applied in the manner prescribed for municipal or government securities: Dk = NKD1 - NKD2, where Dk is the coupon income; NKD1 is the accumulated income at the end of the month; NKD2 is the accumulated income paid at the time of purchase of the security …
Step 6
In the event that the bondholder received payments from the issuer in the reporting month, calculate the income as follows: Kd = C - NKD1 + NKD2, where Kd is the coupon yield for the reporting month; C is the amount of the coupon paid; NKD1 is the accumulated income paid to the seller when purchase of a security; NKD2 - accumulated income at the end of the current month.
