Nunavet Ocean Cruises sold an issue of 12-year $1,000 par bonds to build new ships. The bonds pay 4.85% interest, semiannually. Today's required rate of return is 9.7%. How much should these bonds sell for today? Round off to the nearest $1. How do you get the answer using BA Plus 2

Answer:

Par value = $1,000

Coupon rate = 4.85%

Semiannual interest rate = $1,000 × 4.85% / 2

= $24.25

Semiannual coupon payment is $24.25.

Number of period = 12 year × 2

= 24 semiannual

Semiannual rate = 9.70% / 2

= 4.85%

Semiannual market rate is 4.85%$.

in BA plus calculator use following step.

1. Switch on calculator

2. press 4.85 and then I / Y

3. now press 24 and then N

4. Now put -24.25 and then PMT

5. put -1,000 and then fv.

now press PV and then CPT. the value you will get will pre priceof bond today.

anyway price of bond is calculated in excel and screen shot provided below:

Price of bond is $660.45.

PFA