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If a bonds coupon is paid semi annually,how do we calculate the MV of the debt,or if MV given,how to calculate the Gross redemption Yield(YTM)?
Secondly,if there is tax involved ,then when calculating the yield do we take coupon payments net of tax?And one more thing Sir
If we want to know the coupon rate to be paid and the qs involves a tax rate,what do we do?If the interest is paid every 6 months, then you discount in the normal way to get the market value except that time 1 is 6 month, time 2 is 12 months, tim3 is 18 months etc (instead of being 1 year, 2 year etc), and you use the 6 months interest rate for discounting instead of the yearly rate.
The yield is the return to the investor, so you do bring in tax (we ignore personal tax in the exam). It is only when calculating the cost to the company that we need to use the net of tax interest.
Most time we are told the coupon rate. However, I think that the previous paragraph answers this one.
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