Bond Yield Calcuation with HP-12c - Help, please!

Discussion in 'Financial Futures' started by kmiklas, Oct 22, 2018.

  1. kmiklas

    kmiklas

    I'm working through the following example with an HP-12c, but can't get the right answer, and it's frustrating the **** out of me. Where am I going wrong? It's from Bond Markets, Analysis, and Strategies, 9th Ed. by Fabozzi on Pg. 35. BTW it's not a homework question; it's a book example.

    In sum, they get an answer of $931.69; I get $1000.00. Grrrr..... I'm entering the figures into an HP-12c like so

    fCLX :)
    3 -> n (Three coupon payments total)
    10 -> i (Assumed 10% interest rate)
    PMT -> 100 (Coupon payment value)
    FV -> 1000 (Future value; face/par value of bond)
    PV (Present value gives -$1000!?)
    CHS


    Were am I going wrong? Details follow...

    "Suppose that a financial instrument selling for $903.10 promises to make the following annual payments:

    Code:
    Years from Now         Promised Annual Payments
                           (Cash Flow to Investor)
    1                      $ 100
    2                      $ 100
    3                      $ 100
    4                      $ 1,000
    
    "To compute yield, different interest rates must be tried until the present value of the cash flows is equal to $903.10 (the price of the financial instrument). Trying an annual interest rate of 10% gives us the following present value:

    Code:
    Years from Now   Promised Annual Payments     Present Value
                                                  of Cash Flow @10%
    
    1                $ 100                        $ 90.91
    2                $ 100                        $ 82.64
    3                $ 100                        $ 75.13
    4                $ 1,000                      $ 683.01
                                                  ---------
                                                  $ 931.69
    

     
  2. Use Excel solver...
     
    Last edited: Oct 22, 2018
  3. I did it back of the evenlope and got like 15.88% but I would not risk my life for that number!! Have not done this in 15 years...
     
  4. kmiklas

    kmiklas

    The answer is 11%
     
  5. kmiklas

    kmiklas

    Can't... Professor wants us to know how to do this on an HP-12c first. Old school....
     
  6. tommcginnis

    tommcginnis

    HP-12c? Isn't that Reverse Polish input or something?!? I like it......

    At any rate, a trap I always recall: is the sale (the pricing) at the beginning of the 4th period, or the end? It doesn't jump out at me in the question...
     
  7. Just a guess here, but is there a year 4 interest payment?
     
    tommcginnis likes this.
  8. newwurldmn

    newwurldmn

    Your HP12 is assuming a 100 coupon on the fourth year : so the final payment is 1100 vs 1000 in the example. The extra 100 in your HP calc has a PV of about 68.3
     
    Baron, ajacobson and tommcginnis like this.
  9. tommcginnis

    tommcginnis

    End-of-period-ism! Full Couponosis! :wtf:

    (Takes you back, don't it??:D))
     
  10. newwurldmn

    newwurldmn

    It does. I had pull out my 12c to figure that one out. It still worked after 10 years.
     
    #10     Oct 23, 2018
    tommcginnis likes this.