Is there a way to solve for YTM in the below question using the TI calculator? CFAI did not give a detailed solution to this problem, thus suggesting that “r or YTM” could be solved through calculators. I remember somewhere in the readings CFAI does state that r could be solved through calculators and I wasn’t able to get it then. My TI calculator classifies r ( or I/Y) only as an input variable and hence cannot be computed.
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If this is not possible, what is the fastest way to do it. I’m thinking of using PV of annuity but still couldnt solve the r in the ff equation: 40 1040 900 = E* ------------------- + ----------------- ( 1 + r / 2 ) ^9 (1 + r/2) ^10 *E represents summation in the above formula
N = 10, I/Y = ?, PV = -900, PMT = 40, FV = 1000…solve for I/Y = 5.31% (rounded).
I also use a TI and have no problem calculating this, maybe watch your signs? PV sign should be different from the FV & PMT signs (FV & PMT should be the same).
The 5.31% needs to be multiplied by 2 (5.31 x 2 = 10.62). 10.62% x (1 - 38.0%) = 6.6% (rounded).
Caveat: if using the BAII, check your values of P/Y and C/Y. If P/Y=C/Y=1, then the above method will work. Another equivalent way is to set P/Y=C/Y=2 which will produce I/Y=10.62 straight away. If you have set P/Y and C/Y to other values, you will NOT get the correct answer.
As a general practice - I would NOT advise setting P/Y, C/Y to any other value other than 1. Setting it to some other value might mean you forgot to reset it later, and the earlier value gets used - and messes up your answer. And believe me that choice would be one of the answers too.