# Par bond yield

Just a quick question. I have a mental block.

What at are the keys I must press to solve for PMT:

n=3

Spot price in period s1 = 1%

Spot price in period s2 =2%

Spot price in period s3= 3%

fv=100

pv=100

i tried the following on the calculator set N=1, I/y =1, fv=100, pv =-100. Etc and calculate for pmt. I repeat moving the I/Y up a point along with N. I end basically with 1, 2 and 3 for each pmt respective of period.

I can’t see how the figure of 2.96 is done.

100 = C/1.01 + C/(1.02^2) + (100 + C)/(1.03^3)

A little algebra should get you to C = 2.96. While your calculator is useful for many situations, it can’t handle the situation where the interest rate changes year by year.

You cannot use the cash flow buttons on your calculator to solve this problem. It requires some algebra:

100 = PMT / 1.01 + PMT / 1.02² + PMT / 1.03³ + 100 / 1.03³

100 = 0.9901PMT + 0.9612PMT + 0.9151PMT + 91.51

8.49 = 2.8664PMT

PMT = 8.49 / 2.8664 = 2.96.

Of course, on the exam you wouldn’t waste your time doing this. You would try the middle answer choice (B); if it gives you a PV of 100, then B’s your answer. If it gives you a PV greater than 100, then B is too high; A’s your answer. If it gives you a PV less than 100, then B is too low: C’s your answer.

thanks thats a big help

My pleasure.

Thanks S2000, that’s a really good approach. Appreciate it.

You’re quite welcome.