How is the income on zero coupon bonds taxed?

CFA Level I Fixed Income
#1

In Kaplan, it is stated that the difference between the price of bond and the face value at maturity, is treated as interest and taxed accordingly as ordinary income. eg. you buy a ZCB at 600, and redeem it for 1000 on maturity. Your income is 1000 - 600 = 400, which should be treated as interest income.

However, readings from the CBOK suggest it should be treated as Capital gains.

Which one’s corrrect?

#2

Does anyone knows what is “Improper call of perception” is…??? whlie answering one of me CFAI Mock exams, an error ocurred and I got the above mentioned message. Afterwards, I couldn’t access my CFAI mock exams anymore, evertime I try I got the same message…

Thanks a lot for your help…

#3

Buddy, you are posting on the wrong link. Create a new post. And I got no idea of this improper call of perception… seems strange!

#4

Elaish:

Its related to an improper loading of your Flash player.

Reinstall or update that. http://get.adobe.com/flash player/

#5

Siidhart:

I believe you only pay capital gains(losses) on bonds if you redeem them at a price above(below) its constant yield trajectory.

#6

they are treated as taxable interest income every year even when no physical cash interest payment has been made.

#7

Yes, in the US (at least), you’re taxed on the imputed interest (as if you’d received it).

#8

so it is treated as interest income, thnx!

#9

Cap gains are levied when sale price prior to maturity is more in comparison the purchase price. HOwever, I am talking about zero coupon bonds, where there is no interest payment and the difference between maturity sale value and discounted purchase price is received. In that case, I suppose, entire difference is taxed as interest income.