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Primer on bond investing
have 4.00% coupons. A discount bond is priced below par. The yield exceeds the coupon rate because the price will rise towards par as the bond approaches maturity. Using the example in Table 1, the discount bond is priced at 95.00 and pays a 4.00% coupon. The investor will receive the par value of 100 when the bond matures in five years.
Primer on premium bonds
Writing off the premium If you buy a bond at a premium, you receive more coupon income than if you bought a bond with the same yield that is priced at par. The IRS gives you a choice of two ways to avoid being taxed on that extra coupon income: you can amortize the premium each year, or you can take a capital loss on the erosion of
Risk and Opportunity in a Changing World
and interest coupons) of 8 .9%, as compared with 5 .7% for U .S . bonds .8 One thing to keep in mind when investing in overseas bond funds is the degree to which currency fluctuations come into play . Suppose you purchase shares in a fund that invests in attractively priced European bonds . If