Creating a synthetic after-tax zero-coupon bond using US Treasury STRIP bonds: implications for the true after-tax spot rate
For an individual or company that is subject to taxes, we develop a method that uses laddered Separate Trading of Registered Interest and Principal (STRIP) bonds to determine the value (and composition) of a portfolio that replicates a risk-free after-tax cash flow that will occur on a single future date. In contrast to previous approaches, our method does not require rebalancing or short sales. In addition, we show that the standard after-tax risk-free spot rate, defined as the after-tax yield on a US Treasury STRIP bond, is correct only for a flat-term structure. Using our method, we provide a true measure of the after-tax risk-free spot rate that applies to any term structure.
Volume (Year): 21 (2011)
Issue (Month): 10 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAFE20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAFE20|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bierwag, G. O., 1977. "Immunization, Duration, and the Term Structure of Interest Rates," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(05), pages 725-742, December.
- Prisman, Eliezer Z. & Tian, Yisong, 1994. "Immunization in Markets with Tax-Clientele Effects: Evidence from the Canadian Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 29(02), pages 301-321, June.
When requesting a correction, please mention this item's handle: RePEc:taf:apfiec:v:21:y:2011:i:10:p:695-705. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.