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On Makeham's formula and xed income mathematics

Author

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  • Jensen, Bjarne Astrup

    (Department of Finance, Copenhagen Business School)

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 accruals and 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.

Suggested Citation

  • Jensen, Bjarne Astrup, 1999. "On Makeham's formula and xed income mathematics," Working Papers 1999-13, Copenhagen Business School, Department of Finance.
    • Handle: RePEc:hhs:cbsfin:1999_013
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    File URL: http://ir.lib.cbs.dk/download/ISBN/8790705297.pdf
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    References listed on IDEAS

    as
    1. Constantinides, George M, 1983. "Capital Market Equilibrium with Personal Tax," Econometrica, Econometric Society, vol. 51(3), pages 611-636, May.
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    More about this item

    Keywords

    Makeham's formula; consistent accounting schemes; accrued capital gains; yield be- fore tax and yield after tax.;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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