# 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