Question

Hi all,

Can someone post formulas used for bond and stock valuation, NPV & IRR formulas & how to insert them in BA2 plus calculator. thanks!

Answer 1

Ok so if you are valuing a bond, you need to know the future values, the yield to maturity, the time to maturity, the coupon rate and weather the coupons are paid semi-annually or quarterly or annually.

A bond whose face value is $1000, pays 6% coupon annually. The time to maturity of the bond is 8 years and the yield to maturity is 8%.

FV = $1000

PMT = 6% * 1000

= $60

I/Y = 8%

N = 8 YEARS

So, the present value is :

PV = ($1064.6321)

So, the present value of bond is ($1064.6321)

It can be computed as :

= $60/. 1.08 + 60/1.08^2 + ............ $1060/1.08^8

= ($1064.6321)

the stocks can be valued using the Gordon Growth Model:

Po = D1/ Re - G

When the dividend paid next year is given, the required rate of return and growth rate is provided, the present value of stock can be computed.

For example, the dividend just paid is $2.4. The growth rate of dividends is 8% and the required rate of return is 12%. SO, the current value of stock is:

Po = $2.4 * 1.08/ 0.12 - 0.08

=$64.8

The NPV and IRR can be computed as :

The initial investment of the project is $3,00,000. The cash flows are $50,000 for 4 years. The required rate of return is 5%. Compute the NPV and IRR.

SO, the strokes for the BA2 PLUS CALCULATOR WILL BE,

CF0 = ($3,00,000)

CF1= $50.000

CF2= $50,000

CF3= $50,000

CF4= $50,000

So, the NPV is ($122,702.4748)

IRR = -14.4538%

SO, this is now we insert them in BA 2 plus.

The formula for NPV is :

($30,000) + 50,000/1.05 + 50,000/1.05^2 + 50,000/1.05^3 + 50,000/1.05^4

= ($122,702.4748)

The IRR is the rate at which the NPV is zero,

($30,000) + 50,000/ (1 + IRR)^1 + 50,000/(1 + IRR)^2 + 50,000/(1+IRR)^3 + 50,000/(!+IRR)^4 = 0

So, IRR = -14.4538%