Just bought the new calculator. Figured out the basics so far using a fixed discount rate/required rate of return. But when given spot rates I don’t know how to solve for PMT without having to do time consuming algebra on paper. Is there an easy way to just plug in the different spot rates in the BAII Plus calculator and just solve for PMT?
Examples are given on Pg. 433 Study Session 15: Reading 53: Introduction to Fixed Income Valuation.
Thanks!
I can’t think of a fast way to do this calculation in one fell swoop, but you could use the TVM worksheet to calculate the individual Ri to figure out the level coupon rate and store them in memory registers.
E.g. 4 year spot rate 7%, compounded semi-annually
P/Y=C/Y=2
N=8, I=7, PMT=0, FV=1, CPT PV = 0.759412 STO MEM
I don’t have access to LI material, but you could probably verify using the example on pg 433.
Is there a good video on how to do solve for PMT individually by each year, with each year having a different spot rate, by storing the rates in memory registers? Most of the videos I’ve seen on youtube are the ones with fixed discount rates for each year, not varying spot rates.
As a general rule you cannot use your calculator to calculate PMT given the spot rates and the bond price today.
The good news is that you don’t have to; it will never be asked on the exam.
(Note that if it _ were _ asked, you still wouldn’t have to calculate it, because this is a multiple choice test. You simply try the middle payment (answer choice b) and calculate the bond price. If it’s correct, b’s the answer. If it’s too high, answer choice a is correct; if it’s too low, answer choice c is correct.)
Ok excellent. Thanks!
My pleasure.