To use this bond price calculator simply select the item that you would like to solve for and input the variables that you know. Below the calculator you’ll see instructions to solve for anything you can use a bond calculator for to include tax-free equivalent municipal bond yield.
A few quick notes…
Coupon
A bond’s coupon is the interest payment you receive. Use the simple annual coupon payment in the calculator. If your bond has a face, or maturity, value of $1,000 and a coupon rate of 6% then input $60 in the coupon field.
Compounding Frequency
For most bonds, this is semi-annual to coincide with the fact that you receive two annual coupon payments. The calculator will make the necessary adjustments to your annual coupon if you select this option. For instance, with the above mentioned $1,000 par bond paying a 6% coupon you would receive two payments of $30.
Yield to Maturity
This is likely the most relevant value you’ll want to calculate. The yield to maturity is the annual return you’ll earn on the bond if you buy it at its current price and hold it until it matures.
To calculate yield to maturity you’ll input the current price, coupon payment, number of years until the bond matures, and the face value which is what you’ll receive when the bond matures.
Taxable Equivalent Yield
If you use the calculator to find the yield to maturity on a tax-free municipal bond, you may want to compare that to a taxable bond. Simply divide the yield to maturity by 1 minus your marginal tax rate.
For example, if you have a tax-free municipal bond with a 3% yield to maturity and your marginal tax rate is 35%…
The taxable equivalent yield is 3%/(1-.35) which is 4.615%.
Tax-Free Equivalent Yield
If you use the calculator above to find the yield to maturity on a taxable bond, you can also compare that to a tax-free municipal bond by multiplying by (1-your marginal tax rate) instead of dividing. Working the previous example backwards, suppose you calculate a yield to maturity on a taxable of 4.615%. The tax-free equivalent is 4.615% x (1-.35) which is 3%
Calculate Bond Price if Rates Change
Bond prices fluctuate when interest rates change. You can use the calculator to see how your bond’s price will change to reflect changes in the yield to maturity.
To solve for your bonds new price select “I want to solve for price”. Then, input your bond’s coupon, face value, remaining years to maturity, compounding frequency, and the bond’s new yield to maturity.
You can check current yields at the Federal Reserve Ban of New York.
Yield to Call
You can use this calculator to calculate the yield to call on a callable bond. Simply set it to calculate the yield to maturity. For the face value, add the call premium to the par value.
