Simple bond calculation - what am I doing wrong?

CFA Level I Corporate Finance
#1

I’m doing the CFAI practice problems for 2012 Corporate Finance (Reading 37, question 12).

In solving the market value of debt, the question gives the following information, “… it also has $10 million face value bonds that have five years remaining to maturity and 8 percent coupon with semi-annual payments, and are priced to yield 13.65 percent.”

The solution states:

FV = $10,000,000 PMT = $400,000 N = 10 I/YR = 13.65%

Solving for PV gives the answer of $7,999,688

However, when I input the same information into my TI BAII Plus I get: $ -4,896,931.51 for PV.

What am I doing wrong?

#2

I don’t have my BA II Plus available to check this, but you might need to alter the variable for “periods per year.” However, I like to avoid that whenever possible.

The appropriate interest rate to use for N = 10 is the six-month rate, which is 13.65% / 2 = 6.825%. If you use that, you’ll get the correct PV.

#3

Thank you! I knew it was something simple like that.

#4

also always remember to

  1. not change the P/Y variable. Instead change the I/Y and N variables.

If 2 times a year, for 10 years @ 5%

N=20,I/Y = 2.5

  1. Before each calculation - be sure to hit 2nd CLR TVM (2nd FV) to clear out past calculations.

  2. Watch out for tell tale signs of BGN (to check if you are operating in the Annuity Due mode).

[Of course this is all for the TI calculators).

#5

Thanks cpk123.