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

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

1. 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. El OchoCinco

Use Excel solver...

Last edited: Oct 22, 2018
3. El OchoCinco

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

The answer is 11%

5. kmiklas

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

6. 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. ajacobson

Just a guess here, but is there a year 4 interest payment?

tommcginnis likes this.
8. 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

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9. tommcginnis

End-of-period-ism! Full Couponosis!

(Takes you back, don't it??))

10. newwurldmn

It does. I had pull out my 12c to figure that one out. It still worked after 10 years.

#10     Oct 23, 2018
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