HP HP10BII - HP 10 BII Internal Rate of Return (IRR) Calculation; HP 10 BII Bond Valuation Calculation

BONDVALUATION
ColinCSmith2010
10
*seegettingstarted
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16. Valueofanannualpaymentbondwithasingleannualpayment
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Acompanypurchasesbondson1Januaryofthis
year.Thenominal/face/couponvalueisR1,000and
theannualnominal/couponinterestrateis10%.The
bondisredeemableon31December6yearslater.
Themarketinterestrateforsimilarbondsis15%.
Assumethatthebondpaymentsaremadeannually
inarrears.Whatpricewouldthecompanypayfor
thebond?(i.e.whatshouldthevaluebeon1
Januaryofthisyear?
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HP10BIIfinancialcalculator
KEYS DISPLAY
*MustnotdisplayBEGIN
CLEARALL 0.00
15I/YR 15.00
6N 6.00
1,000FV 1,000.00
100PMT 100.00
1P/YR 1.00
PV ‐810.78
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17. Valueofatypicalgovernmentbondwithsemi‐annualpayments
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Assumesameinformationasfor16aboveexcept
thatthebondisatypicalgovernmentbondthat
payssemi‐annuallyinarrears.Whatpricewouldthe
companypayforthebond?
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HP10BIIfinancialcalculator
KEYS DISPLAY
*MustnotdisplayBEGIN
CLEARALL 0.00
15÷2I/YR
7.50
6x2N 12.00
1,000FV 1,000.00
100
÷
2PMT
50.00
1P/YR 1.00
PV ‐806.62
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18. Calculatingtheyieldtomaturity
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Thisisextremelydifficulttocalculatewhenusingaformulaapproachwithoutafinancialcalculator.
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Thenominal/face/couponvalueisR1,000andthe
annualnominal/couponinterestrateis10%paid
semiannuallyinarrears.Youpurchasedthebondon
1Januaryofthisyearand
thebondisredeemableon
31December10yearslateratapremiumof10%.
ThebondispricedatR980on1Januaryofthisyear.
Whatistheyieldtomaturityon1Januaryofthis
year?
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‡ Rememberthatthisistheratefor6months.
To
annualisetheconvention(frombond
tradingintheUnitedStates)hasbeento
multiplythisby2.
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 
HP10BIIfinancialcalculator
KEYS DISPLAY
*MustnotdisplayBEGIN
CLEARALL 0.00
10x2N 20.00
1,000x1.10FV 1,100.00
980+/‐PV‐980.00
50PMT 50.00
1P/YR 1.00
I/YR 5.45
X2 10.91
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