### Abstract

Original language | English |
---|---|

Place of Publication | www |

Publisher | SSRN: Social Science Research Network |

Number of pages | 30 |

Publication status | Published - 2012 |

### Keywords

- Makeham's Formula
- Duration
- Convexity
- Yield after Tax
- Tax
- Accued Capital Gains

### Cite this

*Makeham's Formula: Some Applications in Fixed Income Analysis*. www: SSRN: Social Science Research Network.

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**Makeham's Formula : Some Applications in Fixed Income Analysis .** / Astrup Jensen, Bjarne.

Research output: Working paper › Research

TY - UNPB

T1 - Makeham's Formula

T2 - Some Applications in Fixed Income Analysis

AU - Astrup Jensen, Bjarne

PY - 2012

Y1 - 2012

N2 - Makeham's formula is an actuarial formula expressing the present value of a payment stream in terms of its repayments instead of the payments themselves. The formula is largely neglected in the finance literature, but -- as this paper shows -- it has a number of useful applications in fixed income analysis. We use Makeham's formula to decompose the return on a bond investment into interest payments, realized capital gains and accrued capital gains for a variety of accounting rules for measuring accruals in order to study the theoretical properties of these accounting rules, their taxation consequences and their implications for the relation between the yield before tax and the yield after tax. We also show how Makeham's formula produces short-cut expressions for the duration and convexity of a bond and facilitates the analytical calculation of the yield in certain cases.

AB - Makeham's formula is an actuarial formula expressing the present value of a payment stream in terms of its repayments instead of the payments themselves. The formula is largely neglected in the finance literature, but -- as this paper shows -- it has a number of useful applications in fixed income analysis. We use Makeham's formula to decompose the return on a bond investment into interest payments, realized capital gains and accrued capital gains for a variety of accounting rules for measuring accruals in order to study the theoretical properties of these accounting rules, their taxation consequences and their implications for the relation between the yield before tax and the yield after tax. We also show how Makeham's formula produces short-cut expressions for the duration and convexity of a bond and facilitates the analytical calculation of the yield in certain cases.

KW - Makeham’s formula

KW - Consistent accounting schemes

KW - Accrued capital gains

KW - Yield before tax and yield after tax

KW - Makeham's Formula

KW - Duration

KW - Convexity

KW - Yield after Tax

KW - Tax

KW - Accued Capital Gains

M3 - Working paper

BT - Makeham's Formula

PB - SSRN: Social Science Research Network

CY - www

ER -