When a Treasury fixed-principal note or bond or a Treasury inflation-protected security TIPS is stripped through the commercial book-entry system each interest payment and the principal payment becomes a separate zero-coupon security. Each component has its own identifying number and can be held or traded separately. For example, a Treasury note with 10 years remaining to maturity consists of a single principal payment, due at maturity, and 20 interest payments, one every six months over a 10 year duration.
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Original Issue Discount Tutorial. The following is an overview of the economics and tax considerations regarding Original Issue Discount. Relevant tax code sections are through
Treasury STRIPS are fixed-income securities that are sold at a significant discount to face value, but don't offer interest payments, due to the fact that they mature at par. With these instruments, an investor's return is determined by calculating the difference between the purchase price and the bond's trading value face value if held to maturity. Backed by the U. Although STRIPS investors don't receive tangible incomes, they nevertheless are obligated to pay federal income tax on the bond's accretion for the year.
As an investment, bonds are riskierbut pay a higher interest rate, than money market funds, demand deposits or checkable deposits, but are safer than stocksand usually less profitable, because they have no potential for growth. Bonds are long-term debt or funded debtissued by corporations, and governments and their agencies to finance operations or special projects. Corporations pay back interest and principal from earnings, whereas governments pay from taxes, or revenues from special projects.
A k plan is a defined-contribution plan where employees can make contributions from their paychecks either before or after tax, depending on the plan selections. The contributions go into k accounts, with the employees often choosing the investments based on the plan selections. Refers to its number in the Internal Revenue Code.
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Anyone who tells you otherwise is committing a crime. The following is a summary of key information about each of the Portfolios, including investment objectives, principal investment strategies and principal investment risks. To maintain a level of total return as may be consistent with the preservation of capital.
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