[Code of Federal Regulations] [Title 31, Volume 2] [Revised as of July 1, 2002] From the U.S. Government Printing Office via GPO Access [CITE: 31CFR344.11] [Page 268-281] TITLE 31--MONEY AND FINANCE: TREASURY CHAPTER II--FISCAL SERVICE, DEPARTMENT OF THE TREASURY PART 344--U.S. TREASURY SECURITIES--STATE AND LOCAL GOVERNMENT SERIES--Table of Contents Subpart D--Special Zero Interest Securities Sec. 344.11 How do I redeem a Special Zero Interest Security before maturity? Follow the provisions of Sec. 344.6(a)-(g) except that no market charge or penalty will apply when you redeem a special zero interest security before maturity. Appendix A to Part 344--Early Redemption Market Charge Formulas and Examples for Subscriptions From December 28, 1976, Through October 27, 1996 (a) The amount of the market charge for bonds and notes subscribed for before October 28, 1996 can be determined by the following formula: [[Page 269]] [GRAPHIC] [TIFF OMITTED] TR13SE00.002 (b) The application of this formula can be illustrated by the following example: (1) Assume that a $600,000 note is issued on July 1, 1985, to mature on July 1, 1995. Interest is payable at a rate of 8% on January 1 and July 1. (2) Assume that the note is redeemed on February 1, 1989, and that the current borrowing rate for Treasury at that time for the remaining period of 6 years and 150 days is 11%. (3) The increased annual borrowing cost is $18,000. ($600,000)x(11%-8%) (4) The market charge is computed as follows: [[Page 270]] [GRAPHIC] [TIFF OMITTED] TR13SE00.003 [GRAPHIC] [TIFF OMITTED] TR13SE00.004 (c) The amount of the market charge for certificates of indebtedness subscribed for before October 28, 1996 can be determined by the following formula: [[Page 271]] [GRAPHIC] [TIFF OMITTED] TR13SE00.005 (d) The application of this formula can be illustrated by the following example: (1) Assume that a $50,000 certificate of indebtedness is issued on March 1, 1987, to mature on November 1, 1987. Interest is payable at a rate of 10%. (2) Assume that the certificate of indebtedness is redeemed on July 1, 1987, and that the current borrowing cost to Treasury for the 123-day period from July 1, 1987, to November 1, 1987, is 11.8%. (3) The increased annual borrowing cost is $900. ($50,000) x (11.8%- 10%) (4) The market charge is computed as follows: [GRAPHIC] [TIFF OMITTED] TR13SE00.006 Appendix B to Part 344--Formula for Determining Redemption Value for Securities Subscribed for and Early-Redeemed On or After October 28, 1996 (a) This formula results in a premium or discount to the issuer depending on whether the current Treasury borrowing rate at the time of early redemption is lower or higher [[Page 272]] than the stated interest rate of the early-redeemed SLGS security. The total redemption value for bonds and notes can be determined by the following two steps. First, calculate accrued interest payable in accordance with Sec. 344.6(d)(1) using the following formula: [GRAPHIC] [TIFF OMITTED] TR13SE00.007 Second, calculate the redemption value per Sec. 344.6(d)(2) using the following formula: [GRAPHIC] [TIFF OMITTED] TR13SE00.008 (b) The application of this formula can be illustrated by the following examples: (1) The first example is for a redemption at a premium. (i) Assume that an $800,000 2-year note is issued on December 10, 1996, to mature on December 10, 1998. Interest is payable at a rate of 7% on June 10 and December 10. (ii) Assume that the note is redeemed on October 21, 1997, and that the current borrowing rate for Treasury at that time for the remaining period of 1 year and 50 days is 6.25%. (iii) The redemption value is computed as follows. First, the accrued interest payable is calculated as: [[Page 273]] [GRAPHIC] [TIFF OMITTED] TR13SE00.009 [GRAPHIC] [TIFF OMITTED] TR13SE00.010 Then, the redemption value is calculated as: [[Page 274]] [GRAPHIC] [TIFF OMITTED] TR13SE00.011 (2) The second example is for a redemption at a discount and it uses the same assumptions as the first example, except the current Treasury borrowing cost is assumed to be 8.00%: (i) Assume that an $800,000 2-year note is issued on December 10, 1996, to mature on December 10, 1998. Interest is payable at a rate of 7% on June 10 and December 10. (ii) Assume that the note is redeemed on October 21, 1997, and that the current borrowing rate for Treasury at that time for the remaining period of 1 year and 50 days is 8.00%. [[Page 275]] (iii) The redemption value is computed as follows. First, the accrued interest payable is calculated as: [GRAPHIC] [TIFF OMITTED] TR13SE00.012 Then, the redemption value is calculated as: [GRAPHIC] [TIFF OMITTED] TR13SE00.013 [[Page 276]] [GRAPHIC] [TIFF OMITTED] TR13SE00.014 (c) The total redemption value for certificates of indebtedness can be determined by the following two steps. First, calculate accrued interest payable in accordance with Sec. 344.6(d)(1) using the following formula: [GRAPHIC] [TIFF OMITTED] TR13SE00.015 [[Page 277]] Second, calculate the redemption value per Sec. 344.6(d)(2) using the following equation: [GRAPHIC] [TIFF OMITTED] TR13SE00.016 (d) The application of this formula can be illustrated by the following examples. (1) First, for a redemption at a premium: (i) Assume that a $300,000 security is issued on December 5, 1996, to mature in 151 days on May 5, 1997. Interest at a rate of 5% is payable at maturity. (ii) Assume that the security is redeemed on April 9, 1997, and that the current borrowing rate for Treasury at that time for the remaining period of 26 days is 4.00%. (iii) The redemption value is computed as follows. First, the accrued interest payable is calculated as: [[Page 278]] [GRAPHIC] [TIFF OMITTED] TR13SE00.017 Then, the redemption value is calculated as: [[Page 279]] [GRAPHIC] [TIFF OMITTED] TR13SE00.018 [GRAPHIC] [TIFF OMITTED] TR13SE00.019 (2) Secondly, for a redemption at a discount: (i) Assume that a $300,000 security is issued on December 5, 1996, to mature in 151 days on May 5, 1997. Interest at a rate of 5% is payable at maturity. (ii) Assume that the security is redeemed on April 9, 1997, and that the current borrowing rate for Treasury at that time for the remaining period of 26 days is 6.25%. (iii) The redemption value is computed as follows. First, the accrued interest payable is calculated as: [[Page 280]] [GRAPHIC] [TIFF OMITTED] TR13SE00.020 Then, the redemption value is calculated as: [[Page 281]] [GRAPHIC] [TIFF OMITTED] TR13SE00.021 [[Page 282]]