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HP 12c Platinum Financial Calculator - 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 HP 12c Platinum
The HP 12c Platinum uses the following expression to compute a semiannual coupon with six months or less to maturity:
Figure : Method for calculating a semiannual coupon
The HP 12c Platinum uses the following expression to compute a semiannual coupon with more than six 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 Platinum):
Figure : Method for calculating a semiannual coupon for more than six months
where:
Term
Description
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
The HP 12c Platinum allows either the YTM or bond price to be calculated, provided one of the two is known. The TVM registers , and are used to hold the necessary data, as shown below:
Register
Contents
Annual coupon rate (percentage)
Quoted price (percent of par)
Yield to maturity
Then enter settlement date and maturity date separated by and press to calculate yield to maturity or to calculate both bond price and the amount of accrued interest. If price is calculated, the display shows the bond price and the amount of accrued interest can be brought to the display by pressing and/or the net price can be calculated by pressing in RPN mode or by pressing in algebraic mode. Dates must be entered according to current date mode.
Practice calculating with bonds
Example 1
What price should be paid on August 10, 2003 for a 63/4% U.S. Treasury bond that matures on May 1, 2018 considering a yield of 83/8%? The coupon payments are semi-annual. (The example assumes MM.DDYYYY date format.)
Solution
To make sure there is no residual value from previous calculations, clear the TVM registers contents to zero and set MDY mode prior to start the calculation:
Now enter the initial data:
Keystroke (In RPN mode)
Keystroke (In algebraic mode)
Enter the settlement and maturity dates and compute the bond price:
Keystroke
Display
Figure : Displaying the bond price
To verify the amount of accrued interest and then calculate the net price:
Keystroke
Display
Figure : Displaying the accrued interest
Keystroke (In RPN mode)
Keystroke (In algebraic mode)
Display
Figure : Calculating the net price paid
Answer
The net price paid for the 63/4% 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 81/4% 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 :
Keystroke
Display
Figure : Calculating the yield to maturity
Answer
The yield for the 63/4% 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 ( is automatically set to zero) and set D.MY mode prior to calculate the price.
Keystroke
Display
Figure : Calculating the price for a zero-coupon bond
Answer
The price for the zero-coupon bond in the example is $14.81 per $100.

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