HP 12c (platinum) - Problem Solving (Examples)

Examples

  1. Calculating a future value

  2. Calculating the present value of an annuity

  3. Calculating the value of a bond

  4. Valuing a series of uneven cash flows

  5. Calculating the yield to maturity on a bond

  6. Calculating a future value.

    Problem: Suppose you  invest $10,000 today in an account that pays 5% interest, compounded annually, how much will you have in the account at the end of 6 years? Solution: $13,401 10000CHSPV5i6nFV

  7. Calculating the present value of an annuity.

    Problem: Suppose you are promised annual payments of $1,500 each year for the next five years, with the first cash flow occurring in one year. If the interest rate is 4%, what is this stream of cash flows worth today? Solution: $6,678 1500PMT5n4iPV

  8. Calculating the value of a bond.

    Problem: Calculate the value of a bond with a maturity value of $1,000, a 5% coupon (paid semi-annually), five years remaining to maturity, and is priced to yield 8%. Solution: $878.34

    Note:

    FV = 1,000 (lump-sum at maturity)

    CF = $25 (one half of 5% of $1,000)

    N = 10 (10 six-month periods remaining)

    i = 4% (six-month basis, 8%/2)

    1000FV10n4i25PMTPV

  9. Valuing a series of uneven cash flows

    Problem: Consider the following cash flows,

    CF0 = -$10,000

    CF1 = +$5,000

    CF2 = $0

    CF3 = +$2,000

    CF4 = +$5,000

    1. What is the internal rate of return for this set of cash flows?
    2. If the discount rate is 5%, what is the net present value corresponding to these cash flows?
    3. IRR = 7.5224%
    4. NPV = +$603.09

Solution: 10000CHSgCF05000gCFj0gCFj2000gCFg5000gCFgfIRR5ifNPV

  1. Calculating the yield to maturity on a bond

    Problem: Calculate the yield to maturity of a bond with a maturity value of $1,000, a 5% coupon (paid semi-annually), ten years remaining to maturity, and is priced $857. Solution: 7.01%

    Note:

    FV = $1,000 (lump-sum at maturity)

    CF = $25 (one half of 5% of $1,000)

    N = 20 (20 six-month periods remaining)

    PV = $857

    1000FV20n857CHSPV25PMTi2x