Working Paper Series, Department of Finance, Copenhagen Business School
Bjarne Astrup Jensen
On Makeham's formula and xed income mathematics
Abstract: The return on a bond investment comes from three sources:
Interest payments, real-
ized capital gains and accrued capital gains.
We provide an exact description on how
the capital gains can be
measured under a variety of accounting rules for measuring
study the theoretical properties of such rules, their taxation consequences
and the relation between the yield before tax and the yield after tax.
The vehicle of
our exposition is Makeham's formula, an actuarial
formula for the present value of a
payment stream largely neglected in
the nance literature.
Keywords: Makeham's formula; consistent accounting schemes; accrued capital gains; yield be- fore tax and yield after tax.; (follow links to similar papers)
JEL-Codes: C63; G21; (follow links to similar papers)
24 pages, October 15, 1999
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