How to solve equation for coupon par rate? (via TI BAII plus calculator)

[Hi-Lo]

Hi all,

how to solve following equation via texas instruments BAII plus professional calculator?

"Let C be the coupon rate at which the price for the 4-year T-Note equals the par value. Using the spot rates from the table to discount cash flows, we can write:

100%= C%/ + C%/ +C%/ +(100+C)%/ (1+2%) (1+2,5%)² (1+2,8%)³ (1+3%)⁴

Any ideas how to calculate the equation above?

C=2,98%

[macison]

I think you can’t solve this with a calculator function. Hence, solve it algebraically.

[breadmaker]

Unfortunately, the calculator doesn’t have a worksheet set up for this type of problem. You can use the TVM worksheet to get the PV factors of the individual cash flows and store them in memory registers 1 to 4, just to save you from doing the arithmetic by hand.

I get P₁=0.98039 P₂= 0.95181, P₃ = 0.92049, and P₄ = 0.88849 and plug in to the following formula:

C = (1 - P₄)/ (sum of P₁ to P₄) = (1 - 0.88849) / 3.74119 = 0.02981

[S2000magician]

@breadmaker

Unfortunately, the calculator doesn’t have a worksheet set up for this type of problem. You can use the TVM worksheet to get the PV factors of the individual cash flows and store them in memory registers 1 to 4, just to save you from doing the arithmetic by hand.

I get P₁=0.98039 P₂= 0.95181, P₃ = 0.92049, and P₄ = 0.88849 and plug in to the following formula:

C = (1 - P₄)/ (sum of P₁ to P₄) = (1 - 0.88849) / 3.74119 = 0.02981

You do that only because you’re a swapster.

[breadmaker]

If ciphering is good enough fer Jethro Bodine, then it’s good enough fer me!!