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Old 03-04-2013, 11:53 AM
DGibson DGibson is offline
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Default NPV Bonds Uneven Cash Flows

Hello Everyone I'm new to finance and am having an issue with a problem valuing bonds. I'm working with the HP12C calculator and cannot get the right answer. The question is:

The Morgan Corp has two different bonds currently outstanding. Bond M has a face value of $30,000 and matures in 20 years. The bonds makes no payments for the first 6 years, then pays $800 every six months over the subsequent 8 years and finally pays $1,000 every six months for the last 6 years. Bond N also has a face value of $30,000 and maturity of 20 years; it makes no coupon payments over the life of the bond. If the required return on both these bonds is 8% compounded semiannually what is the current price of Bond M? Of bond N?

I've been able to set up the formula for both:
PM = $800(PVIFA4%,16)(PVIF4%,12) + $1,000(PVIFA4%,12)(PVIF4%,28) + $30,000(PVIF4%,40)

PN = $30,000(PVIF4%,40)

I am struggling with how to enter uneven cash flows over multiple periods in the HP12C.

Thank you for your help,

Drew
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  #2  
Old 03-17-2013, 02:03 AM
abc201879456 abc201879456 is offline
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Default Re: NPV Bonds Uneven Cash Flows

We could solve this problem by finding the present value of each of these cash flows individually and then summing the results. However, that is the hard way. Instead, we'll use the cash flow keys. All we need to do is enter the cash flows exactly as shown in the example. Again, we must clear the cash flow registers first. In this case we need to press f X><Y. Now, enter the time period 0 cash flow into CF0 and the remaining cash flows into CFj. Please note CF1 =0 & freq 1 CF2=800 freq=16 CF3= 1000 freq=12 CF4 =30000 freq=1To enter the cash flows, simply press g then the appropriate key (either PV or PMT). We must also enter the interest rate into i. To get the present value of the cash flows press f PV (you'll see that the shifted version of PV is NPV). We find that the present value is $1,000.17922. Note that you can easily change the interest rate by simply entering a different rate into i and the solving for NPV again.

Time value of money is one of the most important Concept covered in CFA
Some firms like Simplilearn have a good classroom as well distance learning courses on the same
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Old 04-04-2013, 01:35 AM
richardberry134 richardberry134 is offline
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Default Re: NPV Bonds Uneven Cash Flows

The cash flow stream is uneven over many times periods. There is no for formula to calculate the present or future value of a series of uneven cash flows.Present value
When we have unequal cash flows, wehave to find the present value of each individual cash flow and then sum the respective present values.

Future value
Once getthe present value of the cash flows, we can easily apply time-value equivalence by using the formula to calculate the future value of a single sum of money.

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