Hi, I own the HP12C platinum, and I have the manual out in front of me. Despite using the manual, I’m still struggling to fully understand how to use it to calculate yield to maturity of a bond. Let me give you an example I am having trouble with, maybe you can point out where my problem is: "The firm can issue $1,000 face value, 7% semi-annual coupon debt with a 15-year maturity for a price of $1,047.46. " This is taken from Qbank - it requires you to work out the cost of debt -synonymous with YTM- as per the “YTM Approach”. Qbank claims the answer is … “Here, we are given the inputs needed to calculate kd: N = 15 × 2 = 30; PMT = (1,000 × 0.07) / 2 = 35; FV = 1,000; PV = -1,047.46; CPT → I = 3.25, multiply by 2 = 6.50%.” ------- Here is how I tried to do things… In my HPC12 I press… 104.746 & PV 3.5 & PMT 1.012000 & ENTER 1.012015 f & YTM My answer = 3.10 I am not exactly sure what this is telling me. What I do know is that it is not equal to 3.25 as in QBank. ------ So alternatively, I tried to treat the problem as if I am trying to find out IRR. My understanding is that YTM is basically the IRR of the debt. So I press… -1047.46 & g & CF0 35 & g & CFj 30 & g & Nj 7 & i f & IRR The answer I get this time is: 0.01563 Again, not exactly sure what to make of this answer - I thought this approach should have worked? Does anyone follow what I did there, and can you show me the error of my ways? Thanks a lot HP12C users!
1000 FV -1047.46 PV 35 PMT 30 N Compute I. Take that answer and multiply x2. That ought to give you the correct answer.
Thanks a lot jmuc85, I would still be interested in hearing why the steps I took = fail, ideas anyone? Thanks
It is because the calculator assumes annual coupon payments. If you change your maturity date to 1/01/2030, you get 3.25
Thanks, that works great.