Discounted Notes - HP 12c Solutions Handbook

8. Key in the purchase date (MM.DDYYYY) and press
9. Key in the assumed sell date (MM.DDYYYY) and press
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%)
Keystrokes
70 1
90 2
7 3
25 4
50 5
10.011981
10.011986

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
CLEAR
1
Display
10.00 Purchase price.
90.00 Selling price.
7.00 Annual coupon rate.
25.00 Capital gains tax rate.
50.00 Income tax rate.
10.01 Purchase Date.
8.53 % after tax yield.
00-
01-
67
DISPLAY
45 1
.
to find the