I need the steps for calculating the following problem on a financial calculator
ID: 2810647 • Letter: I
Question
I need the steps for calculating the following problem on a financial calculator (BA II Plus), please. I already have the answers but I specifically need to know the steps to simplify the work using the financial calculator. Thank you! BA II Plus is a financial calculator. I need to function steps: N, I/Y, PV, PMT, FV
Term-structure theories Look again at the spot interest rates shown in Problem 25. What can you deduce about the one-year spot interest rate in three years if. .. a. The expectations theory of term structure is right? b. Investing in long-term bonds carries additional risks? Refer to Problem 25 Look again at Table 3.5. Suppose the spot interest rates change to the following downward- sloping term structure: r 1 5 4.696, r 2 5 4.4%, r 3 5 4.296, and r4 5 4.0%. Recalculate discount factors, bond prices, and yields to maturity for each of the bonds listed in the table Table 3.5 Year (t) 2 .04 9246 Bond Price (PV) Yield to Maturity (y, %) Spot rates Discount factors Bond A (8% coupon) .05 9709 8638 7921 Payment (C PV (C) $80 77.67 998.52 1,080 $1,076.19 3.96 Bond B (8% coupon) Payment(C) PV (C) $80 $77.67 80 1,080 73.96 93294 $1,084.58 4.90 Bond C (896 coupon) Payment (C PV (C) $80 $77.67 80 80 69.11855.46 1,080 73.96 $1,076.20 5.81 TABLE 3.5 The law of one price applied to government bonds.Explanation / Answer
n
1
2
3
4
Bond price
Yield to maturity
Spot rate = r
0.03
0.04
0.05
0.06
discount factor = 1/(1+ r)^n
0.9709
0.9246
0.8638
0.7921
Bond A (8% coupon)
payment
80
1080
present value = payment/(1+r)^n
77.67
998.52071
sum of present value of payment
1076.19
Using rate function in MS excel = rate(nper,pmt,pv,fv,type) nper = 2 pmt = 80 pv =-1076.19 fv =1000 type =0 RATE(2,80,-1076.19,1000,0)
RATE(2,80,-1076.19,1000,0)
3.96%
Bond A (8% coupon)
payment
80
80
1080
present value = payment/(1+r)^n
77.67
73.964497
932.94461
sum of present value of payment
1084.58
Using rate function in MS excel = rate(nper,pmt,pv,fv,type) nper = 3 pmt = 80 pv =-1084.58fv =1000 type =0 RATE(2,80,-1076.19,1000,0)
RATE(3,80,-1084.58,1000,0)
4.90%
Bond A (8% coupon)
payment
80
80
80
1080
present value = payment/(1+r)^n
77.67
73.964497
69.107008
855.46116
sum of present value of payment
1076.20
Using rate function in MS excel = rate(nper,pmt,pv,fv,type) nper = 4 pmt = 80 pv =-1076.20fv =1000 type =0 RATE(2,80,-1076.19,1000,0)
RATE(4,80,-1076.2,1000,0)
5.81%
n
1
2
3
4
Bond price
Yield to maturity
Spot rate = r
0.03
0.04
0.05
0.06
discount factor = 1/(1+ r)^n
0.9709
0.9246
0.8638
0.7921
Bond A (8% coupon)
payment
80
1080
present value = payment/(1+r)^n
77.67
998.52071
sum of present value of payment
1076.19
Using rate function in MS excel = rate(nper,pmt,pv,fv,type) nper = 2 pmt = 80 pv =-1076.19 fv =1000 type =0 RATE(2,80,-1076.19,1000,0)
RATE(2,80,-1076.19,1000,0)
3.96%
Bond A (8% coupon)
payment
80
80
1080
present value = payment/(1+r)^n
77.67
73.964497
932.94461
sum of present value of payment
1084.58
Using rate function in MS excel = rate(nper,pmt,pv,fv,type) nper = 3 pmt = 80 pv =-1084.58fv =1000 type =0 RATE(2,80,-1076.19,1000,0)
RATE(3,80,-1084.58,1000,0)
4.90%
Bond A (8% coupon)
payment
80
80
80
1080
present value = payment/(1+r)^n
77.67
73.964497
69.107008
855.46116
sum of present value of payment
1076.20
Using rate function in MS excel = rate(nper,pmt,pv,fv,type) nper = 4 pmt = 80 pv =-1076.20fv =1000 type =0 RATE(2,80,-1076.19,1000,0)
RATE(4,80,-1076.2,1000,0)
5.81%
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