Corporate Bonds

Posts Tagged ‘corporate bonds interest payments’

Question: Can somebody please help me with this problem?

Sachi has $28,000 to invest. Her financial planner suggests that she diversify her investment into three investment categories. Treasury bills that yield 3% simple interest annually, municipal bonds that yield 5% simple interest annually, and Corporate Bonds that yield 9% simple interest annually. Sachi would like to earn $1360 per year in income. In addition, Sachi wants her investment in Treasury bills to be $8000 more than her investment in Corporate Bonds. How much should Sachi invest in each investement category?

Answer: Treasury bills:
Principal = p
Rate = 0.03
Interest = 0.03p

Municipal bonds:
Principal = 28000 - [(p + (p - 8000)] = 36000 - 2p
Rate = 0.05
Interest = 1800 - 0.10p

Corporate bonds:
Principal = p - 8000
Rate = 0.09
Interest = 0.09p - 720

The sum of the three interest amounts needs to equal $1360.

(0.03p) + (1800 - 0.10p) + (0.09p - 720) = 1360

---> 0.03p + 1800 - 0.10p + 0.09p - 720 = 1360

---> 0.02p + 1080 = 1360

---> 0.02p = 280

---> p = $14,000

Sasha invested:

$14,000 in Treasury bills (p)
$8,000 in Municipal bonds (36000 - 2p)
$6,000 in Corporate Bonds (p - 8000)

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Holt: The prospects for Corporate Bonds

Question: purchased interest on bonds?

when a corporate bond is bought you are also paying for the accrual up to that date and then it is refunded or paid back to you on the the day of the interest payment. How is this treated on the 1040.

Answer: You need to match the interest paid against what you received. If you buy a bond in July and pay accrued interest, then when you get an interest payment in September (most bonds pay interest twice a year) you would subtract that off on your Schedule B. On the other hand, if you buy a bond in December and don't get an interest payment until the next year, then you carry forward the interest paid to subtract from your interest income in the next year.

Schedule B Interest:

Bond Interest payer 500
Bond interest payer - accrued interest paid -75

You don't net the amounts together because the IRS gets your interest income data from companies and brokers. If you report less interest income than reported to the IRS, your tax information is reviewed. If you list it the way I do, you are much less likely to receive a notice.

I hope this helps.
Gary

Where to invest now rates are so low ?