calculating bond prices based on spot rates using financial calculator

[anmuriel]

Hello there,

I am wondering if there is a shortcut way to calculate bond prices based on spot rates using financial calculator. If it is possible, please teach me how to do it. I am using BA II Plus Texas.

Thank you so much!

[Harrogath]

I think there is no shortcut, just calculate the present values by hand. Questions will have fewer periods i guess, so not much problem!

[Atomic_Sheep]

I’m having a problem with my calculations, I can never match any of the multiple choice answers, is due to rounding errors? I thought the calculator only displays 2 decimal places but stores more in the background, so rounding shouldn’t be an issue I don’t think. I’m using the HP 12c Platinum. Any ideas?

For example, for Reading 54 question 6, I got 51.55, the correct answer is 51.67 which is worrying because my answer is also close to option A 51.30.

[Tartaglia]

I get exactly 51.67204423, so with rounding 51.67

If you assume that it is a semi-annual bond (which it isn’t), you get 51.30, with rounding.

What are you typing in the the calculator?

[Atomic_Sheep]

I think I figured out what I was doing wrong. I was using 2 decimal place results in my calculations rather than storing the calculation results in memory and using the stored values. Getting the right answers now.

[S2000magician]

Harrogath’s correct: no shortcut.

Sorry.

[Moonborne]

@Atomic\_Sheep

I think I figured out what I was doing wrong. I was using 2 decimal place results in my calculations rather than storing the calculation results in memory and using the stored values. Getting the right answers now.

Are you computing the bond’s price manually in this example? You could simply use the TVM functions for this.

For Reading 54 Question 6 that would be:

n = 15, i = 4.5, PMT = 0, FV = 100, solve for PV.

[busprof]

@Moonborne

Are you computing the bond’s price manually in this example? You could simply use the TVM functions for this.

For Reading 54 Question 6 that would be:

n = 15, i = 4.5, PMT = 0, FV = 100, solve for PV.

Moonborne - he’s talking about valuation using spot rates, not valuation using YTM. In the spot rate approach, you value each cash flow separately using its appropriate discount rate (i.e. the appropriate spot rate) and then add up the individual values. Using the time vlue functions as you did is equiivalent to assuming that all spot rates are identical (i.e. there’s a flat yield curve) and that they’re equal to the bond’s YTM.

[Moonborne]

@busprof

@Moonborne

Are you computing the bond’s price manually in this example? You could simply use the TVM functions for this.

For Reading 54 Question 6 that would be:

n = 15, i = 4.5, PMT = 0, FV = 100, solve for PV.

Moonborne - he’s talking about valuation using spot rates, not valuation using YTM. In the spot rate approach, you value each cash flow separately using its appropriate discount rate (i.e. the appropriate spot rate) and then add up the individual values. Using the time vlue functions as you did is equiivalent to assuming that all spot rates are identical (i.e. there’s a flat yield curve) and that they’re equal to the bond’s YTM.

I know, that was the original poster’s question. Atomic_Sheep’s example doesn’t cover spot rates, just YTM. So I was wondering why he/she would store present values in the calculator’s memory.