HP 12C Calculator: Understanding Bonds and Calculating Bond Prices, Notas de estudo de Engenharia Mecânica

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HP 12C Bonds

Bonds

Bonds in the HP12C

Practice calculating with bonds

HP 12C Bonds

Bonds

It is not unusual that either companies or governments themselves need extra funds to expand into new markets or raise

funds to pay for programs. In these cases, they typically need large quantities of money that the average bank cannot

provide. Raising money by issuing bonds to a public market is one solution.

By purchasing bonds, an investor becomes a creditor to the corporation or government. Many investors have at least

part of their portfolio invested in bonds. The issuer of a bond must pay the investor a "fee" (interest payments) for the

privilege of using his or her money. The interest rate is often referred to as the coupon , and the date on which the issuer

has to repay the amount borrowed (face value) is called the maturity date. The total return an investor receives if the

bond is held to maturity is equal to all the interest payments received plus any gain or loss. This is called the yield to

maturity, or YTM.

Bonds in the HP12C

The HP12C uses the following expression to compute a semiannual coupon with 6 months or less to maturity:

− ×

+ ×

CPN

E

DCS

YIELD

E

DSM

CPN

RDV

PRICE

Figure 1

The HP12C uses the following expression to compute a semiannual coupon with more than 6 months to maturity (don't

worry - there is no need to understand the particulars of this long equation to work with bonds on the HP 12C):

− ×

− + = − +

1 1 1

CPN

E

DCS

YIELD

CPN

YIELD

RDV

PRICE

N

K (^) E

DSC K E

DSC N

Figure 2

where:

DIM = days between issue and maturity date;

DSM = days between settlement date and maturity date;

DCS = days between beginning of coupon period and settlement date;

E = number of days in coupon period where settlement occurs;

DSC = E - DCS = days from settlement days to next 6-month coupon date.

N = number of semiannual coupons payable between settlement date and maturity date;

CPN = annual coupon rate (percentage);

YIELD = annual yield (percentage);

PRICE = dollar price per $100 par value;

RDV = redemption value.

HP 12C Bonds

Figure 5

Answer: The net price paid for the 6¾% U.S. Treasury bond on August 10, 2003 should be $88.23 per $100.

Example 2: Keeping previous example data, suppose that the actual market quote for the bond is 8¼% instead of

83 / 8 %. What yield does it represent now?

Solution: Simply update the quote price in $, enter the settlement and maturity dates and press fS:

8.102003 \

5.012018 fS

Figure 6

Answer: The yield for the 6¾% U.S. Treasury bond now quoted at $88.25 per $100 is 8.13%.

Example 3: Consider a zero-coupon, semi-annual bond purchased on May 19, 2003 that matures on June 30, 2017.

What is the price given a yield to maturity of 14%? Use D.MY date mode this time.

Solution: To make sure there is no residual value from previous calculations, clear the TVM registers contents to

zero (P is automatically set to zero) and set D.MY mode prior to calculate the price.

fG gÔ 14 ¼

19.052003 \

30.062017 fE

Figure 7

Answer: The price for the zero-coupon bond in the example is $14.81 per $100.