How to use TI BA II+ to price a bond

Discussion in 'Today's YouTube' started by David Harper CFA FRM CIPM, Jul 2, 2012.

  1. What is the (model) price of a 10-year $1,000 face value bond with a coupon rate of 4.0% that pays annually, if the yield is 6.0%?



    Follow-up question: should we expect this bond to trade at $851.23?
     
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  2. Aleksander Hansen

    Aleksander Hansen Well-Known Member

    Good stuff, David...
    I like the concept of putting certain things out there like this. Helpful to the general [slightly nerdy subset of] the public, as well as a good way to get the word out about BT.

    There has been a calculator debate going on on the forum and I think doing something similar [not necessarily on YouTube but] as part of specific practice questions would be very helpful and illustrative for a lot of people. That is, a video solving certain practice questions from each section that frequently occur on the exam.

    That being said, I would like to see the same for HP calculators. I did some serious research when deciding what calculator to buy half a year ago, and in terms of value, functions and ease-of-use I felt that the HP 10bII + was by far the best out there. I always favored TI when doing more hard-core math and physics, however, in the financial world I feel TI is like a Microsoft tablet and HP is like an iPad. TI had been sleeping at the wheel here it would seem - or maybe they are just focusing more on the scientific calculation side considering that makes up a larger share of the market [No source to back this up, just my estimate so don't take my word for it].
     
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  3. fereg

    fereg New Member

    Hello,

    The following Treasury zero rates are exhibited in the marketplace:
    • 6 months = 1 .25%
    • 1 year= 2.35%
    • 1.5 years = 2.58%
    • 2 years = 2.95%
    Assuming continuous compounding , the price of a 2-year Treasury bond that pays a 6 percent semiannual coupon is
    closest to:
    A) 105.90.
    B) 105.20.
    C) 103.42.
    D) 108.66.

    How to use TI BA II+ to price this bond ?

    thank you

    George
     
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  4. Ryan S

    Ryan S Member

    What is the (model) price of a 10-year $1,000 face value bond with a coupon rate of 4.0% that pays annually, if the yield is 6.0%?

    sorry, is the answer to the question somewhere?

    I got -$852.80
     
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  5. I get $106.60 = 3*exp(-0.0125*0.5) + 3*exp(-0.0235*1) + 3*exp(-0.0258%*1.5) + 103*exp(-0.0295*2) = 106.5982
    ... one "gut check" we can do is observe that yield (YTM), as something of an average of zero rates, must lie between [1.25%, 2.95%], such that yield < coupon rate, so the price must be greater than par, so we are looking for something greater than 100 or 1,000
     
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  6. Mad_Mac

    Mad_Mac New Member



    Hi fereg,

    Unfortunately, since we’re dealing with a number of different rates, there is no quick and elegant way of solving it on the BAII. I.e. no typing in cash flows, and then hitting CPT NPV.

    For what it’s worth, this is how I would solve this type of questions on my BAII on exam day:

    0 STO 7
    -0.0125 x 0.5 = 2ND eX x 3 = STO + 7 CE|C
    -0.0235
    x 1 = 2ND eX x 3 = STO + 7 CE|C
    -0.0258
    x 1.5 = 2ND eX x 3 = STO + 7 CE|C
    -0.0295
    x 2 = 2ND eX x 103 = STO + 7 CE|C
    RCL 7


    Which gives the answer 105.897
     
    Last edited: Apr 29, 2014
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