Okay class I just did a video on the effective interest rate calculator use under the example of a discount now we're gonna do the same thing but in this case it's gonna be at a premium instead of a discount all right so my example is going to be the same we've got bonds a hundred thousand dollars worth of bonds at this corporation that's going to be selling okay these bonds are four-year bonds they're gonna pay interest annually and the contract rate is 10 percent once again the contract rate can also be called the the coupon rate the stated rate or the discount rate or the not the discount rate or the nominal rate the coupon stated or nominal rate I'm gonna call it the contract rate because that's what my textbook uses the market rate right now is 8 percent so when the contract rate is 10 percent but a bond at this risk level would normally sell at 8 percent then this bonds gonna sell at a premium okay because it's paying on interest at a higher rate so it's gonna sell above the $100,000 okay but we're gonna see that really these investors are willing gonna earn 8 percent and not 10 percent on these bonds okay so let's let's do this time line again let's value what these bonds are gonna sell for so first of all we've got to look at the cash flows the cash flows are the interest and then what it's going to pay out at the end the hundred thousand dollars so the interest is calculated by taking the contract rate or you may be using coupon standard or nominal rate taking this contract rate of 10% times 100,000 so the corporation will pay out $10,000 cash...
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Acquisition premium amortization Form: What You Should Know
Form 1099-INT — Determining the Amount That is Excluded from a Form 1099 You must include all proceeds from the sale of a security with interest on it from a sales transaction, if (1) the sales transaction is qualified and (2) the proceeds from the sale of the security are not included in Form 1099-INT — Determining the Amount That is Excluded from a Form 1099 If the sale of the security is an eligible qualified sale under the tax law, and no proceeds from the sale of the security (determined on the basis that they were received by Form 1099-OID — OID-Related Amount (1) are included in the gross income of the taxpayer, and (2) under section 6045(a), were received or accrued in respect of an eligible covered security, then the amount from the sale of the security is excluded from gross income. Income that may be excluded from gross income includes, from a covered security (a) dividends of the taxpayer, or (b) income from a mutual fund interest, or (c) from other sources described in paragraphs (a), (b), and (c). The following is the definition of “covered security”: “Investment property” means any investment (as defined in section 1, qualified or otherwise) or fund (as defined in section 8(e), qualified or otherwise, or not-for-profit) that is held for its principal purpose of owning or holding property. “Qualified gross income” means gross income for purposes of chapter 31 that is (a) subject to section 1221, 1222, 1322, or 1323, and (b) the gross income of the covered security if it is determined by section 6212 using the original issue discount method. (a) Subject to section 1221, 1222, 1322, or [[Page 67183]] 1323. (b) Excluded income. Gross income does not include any amount that is described in paragraph (a) of this section if the amount is excluded from gross income that is subject to section 1221, 1222, 1322, or 1323. (1) An eligible qualified sale. This section applies if all requirements of section 6213 are met. (2) Capital gain and loss limitation.
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