Compounding paper
A compounding security is an interest-bearing security whose interest income is not paid during the term , but only at the end of the term . This can be interesting for tax reasons, as the interest is not taxed every year, but only once. In addition to the nominal value , the repayment amount also includes interest and compound interest . The interest rate is already fixed at the time of issue .
An example of a compounding paper is the federal treasury note type B.
Sample calculation
Assumption: investment amount € 10,000; Interest rate 4% pa; 5 year term.
| Term year | Interest rate pa | Interest-bearing amount | Interest income | Payout |
|---|---|---|---|---|
| 1 | 4% | € 10,000 | 400 € | 0 € |
| 2 | 4% | € 10,400 | 416 € | 0 € |
| 3 | 4% | € 10,816 | € 432.64 | 0 € |
| 4th | 4% | € 11,248.64 | € 449.95 | 0 € |
| 5 | 4% | € 11,698.59 | € 467.94 | € 12,166.53 |
(compare: discount paper )