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

Financial mangement enviroment, 1. role financial intermediaries 2. nature ...

1. role financial intermediaries 2. nature and role of money markets

Calculating investment statistics and graphing output, Step 1) Opportunity ...

Step 1) Opportunity Set Graph:Combine 2 of your stocks (Ignore the other 2 stocksfor this step only).  Construct an investment opportunity set (the curved set) between the two risk

Determine the preference shares - equity instruments, Determine the Prefere...

Determine the Preference Shares - Equity Instruments Sandwiched between equity share holders anddebt holders, preference share holders have promise of an assured dividend from

Agency relationship, what are the ten agency problems between shareholders ...

what are the ten agency problems between shareholders and auditors and their solutions

Define mergers affect communities, How do mergers affect communities? A: ...

How do mergers affect communities? A: While a locally controlled bank is merged into a bank headquartered somewhere else (an out-of-market merger), a few apprehension about the i

efficient variance reduction, Assume we are in the midst of the financial ...

Assume we are in the midst of the financial crisis in October 2008. Your firm is considering the purchase of a 10 year put option on the S&P 500 Index. You are analyzing the pricin

Finance case study, This case has been framed in order to test the skills i...

This case has been framed in order to test the skills in evaluating a credit request and reaching a correct decision. Perluence International is large manufacturer

Explain economic exposure to exchange risk, How would you explain economic ...

How would you explain economic exposure to exchange risk? Answer: Economic exposure can be illustrated as the opportunity that the firm’s cash flows and so its market value may

L.P Program, LP Problem, Financial Management Max Z = 107x1+x2+2x3 Subject ...

LP Problem, Financial Management Max Z = 107x1+x2+2x3 Subject to 14x1+x2-6x3+3x4=7 16x1+x2-6x3 3x1-x2-x3 x1,x2,x3,x4 >=0

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