Question

Find the R, in step by step by using financial calculator BA II plus.

P0 = $1,040 = $34(PVIFAR%,40) + $1,000(PVIFR%,40)

Answer 1

Let us first define the inputs for calculation of YTM of this bond.

PV = -$1,040 (Price you pay for bond today, a cash outflow)

FV = $1,000 (Face value that you receive, when bond matures, a cash inflow)

N = 40 years (time to maturity)

PMT = $34 (Assuming Annual Payments, received by investor, hence a cash inflow)

I/Y you need to calculate. (which is the rate of return)

Now, let us follow the steps for calculator:

Step 1. Clearing the TVM worksheet always before starting calculation is a good practice, and avoids any calculation error.   You do this by pressing the calculator keys [2^nd] [CLR TVM] [2^nd] [Quit]

Step 2. Now we are ready to make the inputs. Enter 1,040. Press [+/-] and then [PV]. It would display PV = -1,040

Step 3. Enter 34 and then [PMT]. It would display PMT = 34

Step 4. Enter 40 and then [N]. It would display N = 40

Step 5. Enter 1,000 and then [FV]. It would display FV = 1,000.

Step 6. Press [CPT] [I/Y]. It displays I/Y = 3.22% --> R