[Code of Federal Regulations]
[Title 31, Volume 2]
[Revised as of July 1, 2006]
From the U.S. Government Printing Office via GPO Access
[CITE: 31CFR344.11]

[Page 283-296]
 
                  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) through (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:

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[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:

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[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:

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[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

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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:

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[GRAPHIC] [TIFF OMITTED] TR13SE00.009

[GRAPHIC] [TIFF OMITTED] TR13SE00.010

    Then, the redemption value is calculated as:

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[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 290]]

    (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 291]]


[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

    Second, calculate the redemption value per Sec.  344.6(d)(2) using 
the following equation:

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[GRAPHIC] [TIFF OMITTED] TR13SE00.016


[[Page 293]]


    (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:
    [GRAPHIC] [TIFF OMITTED] TR13SE00.017
    
    Then, the redemption value is calculated as:

[[Page 294]]

[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 295]]

[GRAPHIC] [TIFF OMITTED] TR13SE00.020

    Then, the redemption value is calculated as:

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[GRAPHIC] [TIFF OMITTED] TR13SE00.021


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