by Arrow » Sun Nov 06, 2022 9:31 am
Here in Italy we have a crazy tax system in particular for what concerns financial instruments.
What I'm trying to do is to calculate a real net Ytm for bonds but there is one issue I cannot solve.
Accrued interests and coupons are always paid and received net of a fixed tax % so is rather easy
to insert the coupon rate net of that percentage in the income properties of the bond.
The problem comes for the principal that one receives on the maturity date.
If I buy a bond for 100 or 99.7 no problem or little problem.
On the opposite if I buy a bond for 75 and the redemption value is 100 I will receive 100
minus the difference between 100 and 75 ( my buying price) multiplied for 12.5%
if Gov Bond or 26% if corporate bond ) that is 100- [(100-75) x 12.5%] =96.875.
That is in other words the same issue that one has to handle to calculate YTM if there is an anticipated redempemtion with a redemption price different from 100.
Thanks in advance for Your help.
Arrow