HP 12C - Discounted Notes

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8. Key in the purchase date (MM.DDYYYY) and press .
9. Key in the assumed sell date (MM.DDYYYY) and press to find the
after-tax yield (as a percentage).
10. For the same bond but different date return to step 8.
11. For a new case return to step 2.
Example: You can buy a 7% bond on October 1, 1981 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 considered as income, and
your tax bracket is 50%?
(One-half of the long term capital gain is taxable at 50%, so the tax on
capital gains alone is 25%)
Discounted Notes
A note is a written agreement to pay a sum of money plus interest at a
certain rate. Notes to not have periodic coupons, since all interest is paid
at maturity.
A discounted note is a note that is purchase below its face value. The
following HP 12C program finds the price and/or yield* (*The yield is a
reflection of the return on an investment) of a discounted note.
Keystrokes Display
70 1
10.00 Purchase price.
90 2
90.00 Selling price.
7 3
7.00 Annual coupon rate.
25 4
25.00 Capital gains tax rate.
50 5
50.00 Income tax rate.
10.011981
10.01 Purchase Date.
10.011986
8.53 % after tax yield.
KEYSTROKES DISPLAY
CLEAR
00-
1
01- 45 1