Download or read book The Interest Rate Sensitivity of Tax Exempt Bonds Under Tax Neutral Valuation written by Andrew Kalotay and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore the effect of taxes on the prices of municipal bonds. Although interest is tax-exempt, the gain resulting from purchasing a muni at a deep discount below the so-called de minimis threshold is subject to severe tax treatment. The gain is taxed as ordinary income at maturity; currently for a typical investor the applicable rate is roughly 40%. Thus, purchasing a bond at 80 would trigger an 8-point tax liability. The paper develops a rigorous approach to the pricing of munis by incorporating taxes into the industry-standard OAS-based valuation framework. The key concept is tax-neutral value, which is simply the fair value that takes into account potential tax payments. Tax-neutral valuation allows us to explore how muni prices respond to changing interest rates. The basic insight is that due to the interaction of the purchase price and the related tax payment, discount munis are significantly more sensitive to interest rates than taxable bonds. For example, currently the duration of a 10-year taxable bond is roughly 8.5 years, while that of a 10-year muni can exceed 13 years. Tax-neutral valuation provides the foundation for accurately projecting the prices of munis under various interest rate scenarios. The primary application of this approach is risk management, including hedging. It is also essential for determining the optimum time to recognize a loss in order to maximize after-tax performance.
Download or read book Tax exempt Bonds written by Arthur Chauncey Williams and published by . This book was released on 1962 with total page 156 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Interest Rate Risk of Tax exempt Debt written by Leon Gustave Shilton and published by . This book was released on 1984 with total page 284 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Tax Optimization of Municipal Bond Portfolios written by Andrew Kalotay and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Tax-exempt municipal bonds ('munis') are usually held in taxable accounts. The objective of the manager of such accounts should be to maximize after-tax performance. The standard tool for this is the so-called tax-loss harvesting, i.e. selling a bond at a price below the investor's tax basis and recognizing the resulting loss for tax purposes. Another, albeit less familiar tax-beneficial transaction, which will be discussed in detail below, is tax rate arbitrage. The economics of sale depend on both the tax associated with selling the bond, or holding it. In Section 2 we provide an overview of the tax treatment of munis. Selling a bond is tax-beneficial only if the after-tax proceeds from sale exceed the bond's 'hold' value, i.e. the value of the bond to its current holder. As discussed in Kalotay [2016a, 2016b], in the case of munis hold value can substantially differ from the market price. Hold value is a critical input into after-tax analysis, and in Section 3 we illustrate the calculation of hold value in the case of tax-loss harvesting. In Section 4 we describe what we call the 'tax rate arbitrage' strategy and demonstrate how it is calculated. Tax rate arbitrage entails a tradeoff between paying tax earlier at a lower rate or later at a higher rate. The discount rate applicable to the tax at maturity is a critical input into this analysis.Any tax-beneficial sale is an exercise of the so-called tax option. The tax option is acquired automatically and at no cost when a taxable account invests in a security, such as a muni. As discussed in Kalotay [2016c], for investment-grade bonds the value of the tax option can be determined using standard analytical models, such as tax-neutral OAS analytics in the case of munis [Kalotay, 2014a]. Selling and reinvesting the proceeds entails swapping the associated tax options. If the sale is cashflow beneficial, by reinvesting in a like bond (i.e. one with similar interest rate and credit exposure) the investor can realize a riskless gain. The deterrent to transacting is the related transaction cost. The so-called tax efficiency measure, which compares the cashflow benefit to the net loss of option value, provides the signal for the optimal time to transact [Kalotay, 2014b]. These calculations are illustrated in Section 5.
Download or read book The Use of Tax exempt Bonds in California written by Jon David Vasche and published by . This book was released on 1982 with total page 412 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Expected Future Tax Policy and Tax exempt Bond Yields written by James M. Poterba and published by . This book was released on 1984 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Private Use of Tax exempt Bonds written by Dennis Zimmerman and published by University Press of America. This book was released on 1991 with total page 400 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Purchasing of Tax exempt Bonds by Individuals in the 1946 1956 Decade written by James M. Heidell and published by . This book was released on 1960 with total page 116 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Tax Reform and the Market for Tax Exempt Debt written by James M. Poterba and published by . This book was released on 2002 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides clear evidence that the yield spread between long-term taxable and tax-exempt bonds responds to changes in expected individual tax rates, a finding that refutes theories of municipal bond pricing that focus exclusively on commercial banks or other financial intermediaries. The results support the conclusion that in the two decades prior to 1986, the municipal bond market was segmented, with different investor clienteles at short and long maturities. The Tax Reform Act of 1986 is likely to affect this market, however, since it has restricted tax benefits from tax-exempt bond investment by commercial banks. Individual investors are increasingly important suppliers of capital to states and localities, and their tax rates are likely to be the primary determinant of the yield spread between taxable and tax-exempt interest rates in the future.
Download or read book Interest Rate Risk Management of Municipal Bonds written by Andrew Kalotay and published by Andrew Kalotay Associates. This book was released on 2021-03-05 with total page 186 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is an oft-repeated mantra that "munis are different" and that standard analytical tools are irrelevant to managing them. Andrew Kalotay certainly agrees that munis are different. In fact, they are more complex than just about any other bond category. Munis are rich in options, their pricing is tax-dependent, the benchmark curves are comprised of callable bond yields ... and the list goes on. Dr. Kalotay argues that the complexities of munis actually mandate the use of modern fixed income analytics. He demonstrates the necessity for option-adjusted spread (OAS) technology, and exposes the potential pitfalls of risk management by "yield-to-worst." And he offers an in-depth discussion of the de minimis tax effect, which depresses the prices of discount munis. The breakthrough concept of tax-neutral OAS analysis accurately captures this effect. Without tax-neutral OAS, discount munis look deceptively cheap, and their durations are grossly underestimated. Risk managers should sit up and take notice.
Download or read book Tax Policy Leverage and Macroeconomic Stability written by International Monetary Fund. Fiscal Affairs Dept. and published by International Monetary Fund. This book was released on 2016-12-10 with total page 78 pages. Available in PDF, EPUB and Kindle. Book excerpt: Risks to macroeconomic stability posed by excessive private leverage are significantly amplified by tax distortions. ‘Debt bias’ (tax provisions favoring finance by debt rather than equity) has increased leverage in both the household and corporate sectors, and is now widely recognized as a significant macroeconomic concern. This paper presents new evidence of the extent of debt bias, including estimates for banks and non-bank financial institutions both before and after the global financial crisis. It presents policy options to alleviate debt bias, and assesses their effectiveness. The paper finds that thin capitalization rules restricting interest deductibility have only partially been able to address debt bias, but that an allowance for corporate equity has generally proved effective. The paper concludes that debt bias should feature prominently in countries’ tax reform plans in the coming years.
Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book A Structural Framework for the Pricing of Corporate Securities written by Michael Genser and published by Springer Science & Business Media. This book was released on 2006-01-20 with total page 199 pages. Available in PDF, EPUB and Kindle. Book excerpt: A treatment of structural credit risk models for simultaneous and consistent pricing of corporate securities. This book takes us from the economic principles of firm value models to the empirical implementation, through the development of an economic framework. It provides exposition of corporate securities pricing for academics and practitioners.
Download or read book Ebook Principles of Corporate Finance written by BREALEY and published by McGraw Hill. This book was released on 2010-07-16 with total page 590 pages. Available in PDF, EPUB and Kindle. Book excerpt: Ebook: Principles of Corporate Finance
Download or read book Options to Improve Tax Compliance and Reform Tax Expenditures written by United States. Congress. Joint Committee on Taxation and published by Joint Committee on Taxation. This book was released on 2005 with total page 450 pages. Available in PDF, EPUB and Kindle. Book excerpt: Describes proposals to to reduce the size of the Federal tax gap by curtaling tax shelters, closing unintended loopholes, addressing other areas of noncompliance with current tax law, and reforming certain areas of tax expenditures.
Download or read book Dimensions of Tax Design written by James A. Mirrlees and published by Oxford University Press. This book was released on 2010-04-29 with total page 1360 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Review was chaired by Nobel Laureate Professor Sir James Mirrlees of the University of Cambridge and the Chinese University of Hong Kong. --
Download or read book The Stripping of U S Treasury Securities written by Miles Livingston and published by . This book was released on 1989 with total page 82 pages. Available in PDF, EPUB and Kindle. Book excerpt:
