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Article

Bad Bond Math: An Object Lesson Using
Bloomberg’s After-Tax Yields on Market Discount Bonds

Donald J. Smith
The Journal of Wealth Management Spring 2013, 15 (4) 61-67; DOI: https://doi.org/10.3905/jwm.2013.15.4.061
Donald J. Smith
is an associate professor of finance at the Boston University School of Management in Boston, MA.
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  • For correspondence: donsmith@bu.edu
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Abstract

Defining information to be a subset of data (information is data that has utility in decision making), the author offers an object lesson to demonstrate the challenge facing an investor using after-tax yield data presented on a widely viewed Bloomberg page. He demonstrates that users of “black box” technologies need to be able to confirm the numbers that are presented to them by data suppliers and check those calculations and underlying assumptions on a regular basis. Failure to understand these assumptions can lead investors to erroneous conclusions, as illustrated in the comparison of two categories of bonds, deeply discounted U.S. corporate bonds, distressed tax-exempt U.S. municipal bonds, and the projected after-tax rates of return on all of the securities under consideration (given assumed tax rates on ordinary income and capital gains and, of course, assuming no default).

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The Journal of Wealth Management: 15 (4)
The Journal of Wealth Management
Vol. 15, Issue 4
Spring 2013
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Bad Bond Math: An Object Lesson Using
Bloomberg’s After-Tax Yields on Market Discount Bonds
Donald J. Smith
The Journal of Wealth Management Jan 2013, 15 (4) 61-67; DOI: 10.3905/jwm.2013.15.4.061

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Bad Bond Math: An Object Lesson Using
Bloomberg’s After-Tax Yields on Market Discount Bonds
Donald J. Smith
The Journal of Wealth Management Jan 2013, 15 (4) 61-67; DOI: 10.3905/jwm.2013.15.4.061
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    • CORPORATE BOND #1
    • CORPORATE BOND #2
    • AN OBJECT LESSON ON BOND MATH
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