Bond break-even calculator

Discussion in 'Fixed Income' started by kmiklas, Jun 17, 2023.

  1. kmiklas

    kmiklas

    Anyone know of a calculator that will tell me if it makes sense to sell a bond at current market price? That the market price of the bond has “broken even,” and market price is >= holding to maturity, including taxes and the time value of money?

    Simple example: BOT 1yT bill with a 5% yield; i.e. at 95. Assuming a tax bracket of 32%, that only Federal tax will be paid, and that the bond will be taxed marginally (?) the after-tax return will be around 3.5%(?).

    Now if rates drop and the market price (after taxes) of the bond is equal to the keep-to-maturity yield, then it makes sense to sell and take profit sooner, so that the dollars can be reinvested.

    This of course is a highly simplified example with just a T-bill—not a muni, corp, etc. It also has no coupon payments and associated reinvestment risk, FX risk for foreign bonds, etc.

    The math gets complex quite fast.

    Any good calculator recommendations?

    My guess is that these formulae are proprietary… and I’ve got some Python coding ahead of me.

    Ty, Keith
     
    nwoptions likes this.
  2. ph1l

    ph1l

     
  3. kmiklas

    kmiklas

    Thank you!!!