Capital gain or loss, Financial Management

Assignment Help:

An Investor can receive income from this source when the bonds purchased at discount are held up to maturity or when he sells the bond before maturity date at a price above the purchase price. For example, an Investor purchases a Rs.100.00 par value bond for Rs.95.40.  At the time of maturity, there would be a capital gain of Rs.4.60 (Rs.100.00 - Rs.95.40). Let us say that the purchase price is more than par value; then the investor would bear capital loss. For example, assume that the investor purchased bond at Rs.105.40 i.e. more than par value. In this case investor will bear Rs.5.40 (Rs.105.40 - Rs.100.00) capital loss.

In the case of a callable bond the investor has a capital gain when the call price is more than the purchase price of the bond. For example, assume that the bond given in the previous example is called at the Rs.100.95. Then, the capital gain will be Rs.6.10 (Rs.101.50 - Rs.95.40). If the call price is less than the purchase price then the investor will bear capital loss. For example, assume that in place of Rs.100.95, the call price is Rs.93.20. In this case the investor will bear a loss of Rs.2.20 (Rs.95.40 - Rs.93.20).

In case the bond is sold before maturity or call, there will be capital gain only if the sale price is more than the purchase price. For example, assume that the bond in the above example is sold at a price of Rs.102.00. The capital gain would then be Rs.6.60 (Rs.102.00 - 95.40). If the sale price is less than the purchase price then the investor will bear capital loss. For example, assume that the bond given above is sold at Rs.94.90. In such a situation, the capital loss will be Rs.0.50
(Rs.95.40 - Rs.94.90).


Related Discussions:- Capital gain or loss

Random number generation, Random Number Generation Since we have said t...

Random Number Generation Since we have said that competitors' average price, quantity sold and cost behave in a random fashion but follow a normal distribution, if we want to d

Difference among currency forward market and futures market, Explain the ba...

Explain the basic differences between the operation of a currency forward market and a futures market. Answer:  The forward market is an OTC market in which the forward contract

University , After read all the available information carefully, prepare a ...

After read all the available information carefully, prepare a two page (double-spaced) essay and answer the following questions: Assume that we have the following data: C=100+0.50Y

State the exam technique for analysing performance, Exam technique for anal...

Exam technique for analysing performance The below steps must be adopted when answering a question on analysing performance: Step 1    Review figures as they are and commen

Explain about the market-based and bank-based systems, Explain about the ma...

Explain about the market-based and bank-based systems. A clear distinction between market-based in USA and UK and bank-based systems as in Germany, Japan and France define by s

Explain the operating profit margin - performance ratios, Operating profit ...

Operating profit margin Operating profit margin    =   (PBIT / Turnover) x 100% This is the ratio of operating profit to turnover or sales. A high operating profit margin is

Explain the structure of main financial statement, Citilink has just comple...

Citilink has just completed its 2010/11 management accounts. The directors are going to review the financial statements in the next board meeting. You have to prepare a FINANCIAL

Define variants of basic interest rate and currency swaps, Briefly discuss ...

Briefly discuss some variants of the basic interest rate and currency swaps. Answer:  In place of the basic fixed-for-floating interest rate swap, there are as well zero-coupo

Explain about types of costs, Q. Explain about Types of costs? Thus two...

Q. Explain about Types of costs? Thus two types of costs are involved in keeping cash balance in a business- (i) Opportunity Cost (ii) Transaction Cost When cash balan

How is present value affected by change in the discount rate, How is presen...

How is present value affected by a change in the discount rate? Present value is inversely associated to the discount rate.  In other words current value moves in the opposite

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd