Accretion: A method of adjusting a taxpayer’s cost basis of a bond bought at an original discount. The annual accretion is treated as interest for tax purposes. See also: Original Issue Discount: Constant Yield Method; Single Line.
Cost basis: The cost used to determine a capital gain or loss on an investment.
Capital Gain or Capital Loss: The profit or loss from the sale of stocks, bonds, options, real estate and other capital assets.
Original Issue Discount (OID) : A bond that is originally offered in the market at a discount ( below par). The bonds value must be increased (accreted) over its life from the original discount price up to par. See also Accretion, Zero-Coupon Bond.
(1) The face value or principal value of a bond, typically $1,000 per bond.
(2) The face value of a preferred stock n which book value, liquidating value, and dividend payments are based; typically $100 per share.
(3) A bond trading in the market at face value.
(4)The stated value of common stock used primarily for bookkeeping purposes. It has no relation to market value.
Constant Yield Method: A method used for tax purposes t accrete the cost of a bond purchased at an original discount Also known as Constant Interest Method.
Yield: The Annual dividends or interest income paid by a security expressed as percentage of the current price.
Note: My next blog on this subject will offer some examples of how this plays our numbers wise. It will be fun.I promise. Mercedes
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