Investing in Zero Coupon Bonds: All about CATs, STRIPs, TIGRs, LIONS, TRs, and TBRs

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Lawrence R Rosen, 1986 - Obligations coupon zro - 264 pages
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A comprehensive guide to zero coupon bonds, one of the most frequently recommended investments of the last few years. The book shows potential investors how and when to buy zero coupon bonds; addresses volatility; taxation; call and redemption dangers; markups and commissions; what yield really means; pricing surprises; construction of the theoretical spot rate curve; how to avoid paying too much; convertible zeros; and more.
 

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They're the talk of power lunches and cocktail parties. They're sold under names like CATS, TIGRs, LlONs, and STRIPS. They're zero coupon bonds—the most popular new investment for IRAs, Keoghs, and company pensions. Brokerage houses are touting zeros as guaranteed to double your money in six years, triple it in ten, or quintuple it in just 14 years.
But are zeros the solution to everyone's investment dilemma'? Investing In Zero Coupon Bonds shows you why all zeros are not equal — and how you can evaluate the deal you’re offered before you sign on the dotted line. Noted investment expert Larry Rosen shows how you can avoid pitfalls such as losing 50% or more of your zero’s value ... buying zeros at too high a price and selling them too low...or incurring disastrous and unexpected tax consequences.
Investing in Zero Coupon Bonds also covers some of the most enticing aspects of some forms of zeros that are not publicized, including:
• Zero’s non-callability which can be worth its weight in gold to an investor who buys at the right time
• Zero’s ability to facilitate higher company profits by using pension plan immunization and dedication techniques
• The Federal Reserve System’s borrowing rules that provide opportunities to make profits as high as lO0% in a year
Other vital issues Investing In Zero Coupon Bonds examines include:
• Whether or not the U.S.Treasury’s "backing" makes zeros safe
• Whether or not "locking in" an interest reinvestment rate is advantageous
• The magnitude of zero’s price volatility compared to other bonds
•What the "callable tail" of a zero coupon bond is worth
• The relationship of prices at which zeros should sell to the "theoretical spot rate curve"
• How to trade zeros at a fair price
• The hidden dangers of municipal (tax- exempt) zeros, including when they produce taxable income
• How to get back your losses if you’ve been deceived by a broker
• How to compare zeros to alternate investment possibilities
Investing in Zero Coupon Bonds gives you a complete rundown of what the benefits and risks of zeros really are—complete with real world examples and numerous detailed yield graphs to help you analyze every aspect of investment in zeros to maximize your returns
and minimize your risks.
 

Contents

ZERO COUPON BONDS TAKE INVESTMENT
1
HOW TO PAY A FAIR PRICE FOR A ZERO
12
lntemal Rate of Return for Single Investments
16
BEWARE OF ZERO COUPON VOLAllLlIY
25
Table 31 Pricing Volatility
27
Table 35 Calculation of Duration
34
BEWARE OF TAXATION WITH
41
Table 41 Zero Coupon BondsAfter Tax
43
Table 81 Nontaxable Zero Coupon
81
WHAT ZERO COUPON YIELD REALLY MEANS
95
IRR at Purchase and Equivalent Revised IRR
101
I0 PRICING SURPRISES
109
CONSTRUCTION OF THE THEORETICAL
121
STRIPS
187
FREQUENT MISTAKES ABOUT YTM
195
CALLABLE ZERO COUPON BONDS
207

Original Issue Discount
47
BEWARE
55
TAXABILITY OF MUNICIPAL ZERO COUPONS
61
Table 61 Municipal Zero CouponAfter Tax
65
WALL STREET IN WONDERLAND
71
THE SUMMINC UP
217
Zeros Offer Tremendous Profit Possibilities
234
The safety
257
Copyright

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About the author (1986)

Lawrence Rosen is the William Nelson Cromwell Professor of Anthropology at Princeton University and the author of many books, including "Bargaining for Reality" and "The Culture of Islam," both published by the University of Chicago Press.

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