Explore BrainMass

Explore BrainMass

    Finance: Steps for TI BA II For Exxon bond price calculations

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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.

    © BrainMass Inc. brainmass.com June 3, 2020, 4:58 pm ad1c9bdddf
    https://brainmass.com/business/bond-valuation/finance-steps-for-ti-ba-ii-for-exxon-bond-price-calculations-9701

    Solution Preview

    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 ...

    Solution Summary

    The solutions presents the steps to be used for the financial calculator, but also explains the problem and calculates answers.

    $2.19

    ADVERTISEMENT