I am slightly confused regarding very simple TVM entry into the BAII Plus calculator. Please refer to the example below:

What is the price of a 10-Year $1000 Face Value bond with a Coupon Rate of 4.0% that pays semi-annually, if the yield is 6.0%?

My calculator entries:

N = 10

I/Y = 6%

P/Y = 2 (Semi-Annual)

C/Y = 2 (Automatically changes when you change P/Y)

PMT = $40

FV = $1000

CPT -> PV = -$1085.3

The computed PV answer is wrong, the answer should be $851.23. I have accounted for the compounding and payment periods being 2 times per year in respects to C/Y & P/Y, so to my understanding it is not necessary for me to then divide the YTM by 2.

Can someone please let me know what I am doing wrong?

you would need to convert I/Y (3%) and N (5) to semi-annual as well. The calculator on the end mode and entries should be used N, I/Y, PMT, FV and compute for PV.

N is the number of payments, not the number of years. You can enter 20 directly, or you can enter 10 2nd N (which will multply 10 by 2) and hit N again to register the 20.

PMT should be the periodic payment of 20 = $1,000 * 4% / 2.

So then what are the P/Y and C/Y functions useful for then?

Why is it that I can’t just input all the calculations like they are in the problem, and then simply tell the calculator that it is compounded twice a year? Should this not give the same outcome?

Some candidates like to leave P/Y=C/Y=1 for ALL TVM problems because they don’t want the hassle of changing these values. You can do it this way, but you have to be very careful how you set the interest rate I. This is particularly a problem where the payment frequency and the compounding frequency don’t match. That’s why I tend to go with setting P/Y and C/Y on an annual basis, as set out in the question.

Awesome, thanks for the explanation. I guess I’ll be doing this from now on as well, because, as stated in my original post; messing with P/Y and C/Y gave the wrong answers anyway.