Ch 5: Corporate Bonds Part II (interest)

Question 1

in ALL cases, interest paid by corporations on the debt securities is treated as…

Answer 1

ordinary income

Question 2

unlike dividends on stock, there is no category of “qualified” interest with a reduced tax rate. This interest is taxable on…

Answer 2

federal, state, and local income tax level

Question 3

Do zero coupon bonds have taxes?

Answer 3

Although they pay no regular interest income, investors in zeroes owe the income tax each yr on the amount by which the bonds have accreted, just as if the investor had received it in cash.

The income tax is due regardless of the direction of the market price.

Question 4

ST vs LT gains

Answer 4

holding period of 12 months or less = ST

holding period longer than 12 months = LT