Finance: Steps for TI BA II For Exxon bond price calculations
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Please provide the TI BA II Plus steps to solving the following problem and explain the steps:
Exxon sold an issue of bonds with a $1000 par value, 15-year maturity, a 12% coupon rate, and semiannual interest payments.
1. 3 years after the issue, the going rate on the bonds dropped to 5%.
What steps would you take to determine the price at which these bonds would sell.
2. Assume that 2 years after the initial offering, the rate for the bonds rose to 14%.
Calculate the selling price of the bonds.
3. Assume that the conditions in 1 existed - that is, interest rates fell to 5% 3 years after their
issue date. Also assume that the interest rate remained at 6% for the next 12 years.
Explain what would happen to the price of the bonds over this 12-year time frame.
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Solution Summary
The solutions presents the steps to be used for the financial calculator, but also explains the problem and calculates answers.
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1. 3 years after the issue, the going rate on the bonds dropped to 5%.
What steps would you take to determine the price at which these bonds would sell?
Because the bond makes semiannual interest payments, we take 6 months as one period:
N=(15-3)*2=24 PMT = 120/2 =60 FV = 1000 I/Y = 5/2=2.5
CPT PV = -1625.98
The bond is sold at premium ($1625.98) because the coupon rate is higher than ...
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