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

Ansawar, explain the concept of working capital.what are the factors which ...

explain the concept of working capital.what are the factors which influence the working capital?

Define finance function and discuss its nature, Q. Define Finance Function ...

Q. Define Finance Function and discuss its nature and scope Ans. Meaning of Finance: - Finance is defined as the provision of funds at the time when it is required. The role of

Corporate governance, CORPORATE GOVERNANCE Corporate governance can be ...

CORPORATE GOVERNANCE Corporate governance can be stated in different ways, for example: The Private Sector Corporate Governance Trust (PSCGT) defines that corporate governan

Calculate the cost of capital of organization, The following particulars re...

The following particulars relate to ABC Ltd. at the end of 2008: (i)  Rs. 500,000 equity shares of Rs. 10 each. Present dividend per share is Rs. 15; Market price Rs. 100 per sh

Cost of capital, what is the cost of capital and advantages of it?

what is the cost of capital and advantages of it?

Assets, Assets Pension insurance companies' assets can be divided into ...

Assets Pension insurance companies' assets can be divided into five main investment classes: cash, long-term bonds, stocks, property and loans. The total returns on the assets

Discuss the objectives of financial statements, Question: The Statement...

Question: The Statement of Principles for Financial Reporting sets out the principles that should underlie the preparation and presentation of general-purpose financial stateme

Revenues, Revenues Revenues are the gross income received before any de...

Revenues Revenues are the gross income received before any deductions for discounts, expenses, returns, and so on. It is also called sales in most organization. A much less c

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