Question

A bond was issued five years ago with 20 years to maturity carrying 8 percent coupon rate and a market rate of 9%. The issuer’s financial performance has deteriorated significantly and the premium for the possibility of bankruptcy has changed from 3 percent to 5 percent. What is the current price of this bond if the interest is paid annually?

Can you please show me on a Ti83 calculator?

Answer 1

solution

1

K = N

Bond Price [(Annual Coupon)/(1 + YTM).14 + Par esteem/(1 + YTM)^N

K =15

Bond Price =F [(8.1000/100)/(1 + 10/100)^k] 1000/(1+10/100)^15

k=1

Bond Price = 84,88

Utilizing Calculator pre. catches .2ND",FV. at that point dole out

PMT = Par esteem coupon 96=1000.8/(100)

I/Y =10

N =15

FV =1000

CPT PV

Utilizing Excel

=PV(rate,nper,pmt,FV,type)  

pvuomoolis,- vi000moo),- 1000,)

Answer 2

To calculate the current price of the bond using a financial calculator like the TI-83, you can use the present value (PV) function. In this case, the bond has 15 years remaining to maturity (20 years - 5 years), and the coupon rate is 8%, which means the bond pays 8% interest annually.

Here are the steps to calculate the current price of the bond:

1. Determine the annual coupon payment: Coupon Payment = Coupon Rate * Face Value

2. Determine the discount rate: The discount rate is the market rate, which is 9%.

3. Determine the number of periods: The bond has 15 years remaining to maturity, and it pays interest annually.

Now, let's plug these values into the TI-83 calculator:

1. Press the "APPS" button.

2. Select "Finance" by scrolling using the arrow keys and press ENTER.

3. Choose "1: TVM_Solver" and press ENTER.

4. Fill in the following information:

• N: 15 (number of periods)

• I%: 9 (interest rate per period)

• PMT: Annual Coupon Payment (calculated in step 1)

• FV: Face Value (the value at maturity)

• PV: Leave this as 0 (since we want to calculate the present value)

5. To solve for the current price (PV), move the cursor to the "PV" field and press ALPHA and then ENTER.

The calculator will compute the present value (current price) of the bond. The result will be the current price of the bond under the new conditions with a 5% premium for the possibility of bankruptcy.

Please note that the calculator will give you the answer as a negative value since it represents a cash outflow (the price you need to pay to buy the bond). To get the positive value, simply take the absolute value of the result.

Keep in mind that bond pricing can be more complex in real-world scenarios, considering factors like changes in interest rates over time and credit risk. This simplified calculation assumes no changes in the interest rate and only considers the effect of the premium for the possibility of bankruptcy.