How is the interest subsidy provided to the bondholder?
Rather than being paid interest by the bond issuer, purchasers of QZABs sold before July 1, 1999 will receive an annual federal income tax credit equal to the principal amount of the bond times 110 percent of the applicable federal long-term rate (AFR) for the month in which the bond was issued. For QZABs sold on or after July 1, 1999, the credit rate is established on the date of sale and is equal to the rate published for that date on the following Treasury Department Web site: https://wwws.publicdebt.treas.gov/SZ/SPESQZABRate. Maximum maturities are also published on that Web site. The issuer may issue the bond at premium or discount or provide for additional interest payments to take into account the fact that borrowers have different credit ratings.
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