One should indeed consider the amount of coupon within a single year, and its impact upon your taxes, and that is what I intended. Likewise with the cash flow.As has been noted above, this doesn't actually work. If you buy a bond with a low coupon at a discount, you still have to pay income tax on the increase in the principal (unless the discount was de minimis). If you buy a bond with a high coupon at a premium, part of the coupon is not taxed but reduces your basis.By the bond with the yield that you want. Then look at the coupon. If there is a big difference, you may very well want to buy the one with the lower coupon if you don't want the spin-off income (if this is in a taxable account). In contrast, if you plan to spend that coupon as it deposits, you may well want the higher one.
It does affect cash flow; if you buy bonds at a discount, you won't get as much cash as if you buy them at par, and will need to sell some bonds in order to raise cash equal to the yield.
Statistics: Posted by Hebell — Sat Feb 15, 2025 10:43 pm
