A zero-
coupon bond has negative
amortization: no
interest payments are made (the principal accumulates) until
maturity.
The principal at year t is:
Pt=Pt-1(1+r)
- r
- Specified interest rate or yield
- P
- Principal value at a given point
The
tax rate on a such a bond is
imputed:
r=(PT/P0)1/T-1
- r
- Tax rate
- T
- Time of maturity
- P
- Principal value at a given point
Thus one pays P
t-1r at time t.