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Interest tax shield |
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Interest tax shieldThe reduction in income taxes that results from the tax-deductibility of interest payments.Interest tax shield Similar MatchesBond interest yieldBond interest yieldYield calculations on bonds aim to show the return on a gilt or bond as a percentage of either its nominal value or its current price. There are three types of yield calculation that are commonly used:Nominal YieldThis is calculated by dividing the annual income on the bond by its nomina or 'par' value. So the nominal yield on a £100 bond which pays 5% interest per year is 5/100 x 100 = 5%.Current or 'Running Yield'This is calculated by dividing the annual income on the bond by its current market price. So if the market price of the £100 bond dropped to £95, the current yield on the bond at that time would be 5/95 x 100 = 5.36%. Note that as the market price of a bond drops, its yield goes up.Redemption Yield'The Redemption Yield shows what the total return on a bond would be if held to its maturity date. It reflects not only the interest payments a bondholder will receive, but also the gain/loss he will make when it matures. The income element is the same 'current yield' calculation performed above. The gain/loss element is calculated by taking the difference between the current market price and the nominal value of the bond (e.g. in our example 100 - 95 = 5), dividing it by the number of years til maturity (assume 5 years for simplicity, so 5/5 = 1) and then dividing that figure by the current price of the bond (1/95 x 100 = 1.05%) The yield to redemption is the sum of the current yield (5.36%) and the capital yield (1.05%) = 6.41%. Applied or nominal interest rateApplied or nominal interest rateThe rate used to calculate the interest due. Interest rate parity line (IRP)Interest rate parity line (IRP)Diagonal line on a graph that characterizes interest rate parity. Variable interest rateVariable interest rateSee: Adjustable rate Covered interest parityCovered interest parityEquality of returns on otherwise comparable financial assets denominated in two currencies, assuming that the forward market is used to cover against exchange risk. As an approximation, covered interest parity requires that i = i* + p where i is the domestic interest rate, i* is the foreign interest rate, and p is the forward premium. Further Suggestionsgross interestAdd on interest Earnings before interest, taxes, depreciation, and amortization (EBITDA) interest receivable Interest rate floor Interest sensitive stock reversionary interest Forward interest rate Earnings before interest after taxes (EBIAT) open interest Amortizing interest rate swap Simple interest Interest rate Market interest rate Interest parity Interest on interest interest in possession Covered interest rate Export financing interest interest Interest in Arrears Open interest Interest rate parity theorem Best interests of creditors test Effective Interest Rate |
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