Municipal Bond Forum
YTM and premium bonds
Q
What is the definition of YTM that you used in your discussion of premium bonds, “The Smart Buy in Today’s Market”? I’m interested in the capital loss realized when the premium bonds are sold: Does it show up in your calculation of YTM?
A
James A. Klotz responds:
According to the IRS, no capital loss can be claimed when a premium bond matures.
Although there is no loss of capital according to the IRS, the decline from the price of the bond to 100.00 when it matures is most certainly accounted for in the stated yield to maturity calculation. If it wasn’t, the yield to maturity would be equal to the coupon.
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