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Appendix C: Extended Bond Calculations
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 Another area of concern to investors is the accurate calculation of an after-tax yield (either to maturity or some other price). The procedure is to treat your exit (or sale) price the same as you would the call price in a yield-to-call calculation.
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Example: You can buy a 3% bond on November 1, 1972 for 70 and expect to sell it in 5 years for 90. What is your net(after-tax) yield over the 5-year period if interim coupon payments are tax-free and your tax bracket is 50%?
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Solution
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First, determine what your after-tax proceeds on the bond will be after the 5 years:
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Capital gains = 90 – 70 = 20
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Tax on capital gains = 25 % of 20 = 5
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Thus, net proceeds from bond = 90 – 5 = 85
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Now simply solve for yield using .85 (85/100) as the net price-to-par ratio, as follows:
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| 1 |
Key in 70 (purchase price), press STO.
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| 2 |
Key in 11.011972 (purchase date), press SAVE .
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| 3 |
Key 11.011977 (assumed sell date), press DAY.
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| 4 |
Key in 3 (annual coupon rate), press SAVE .
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| 5 |
Key in .85 (net price-to-par ratio), press ÷ PMT.
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| 6 |
Recall 70 (purchase price) by pressing RCL.
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| 7 |
Key in .85 (net price-to-par ratio), press ÷ PV.
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| 8 |
Press i (YTM) to obtain after-tax yield (7.87 %).
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To summarize:
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| | Enter: | | | See Displayed: | | |
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70 STO 11.011972 SAVE 11.011977 DAY 3 SAVE .85 ÷ PMT
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% yield after taxes
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