CFA CFA Level 1 Calculate YTM on deferred coupon bonds using texas instruments

# Calculate YTM on deferred coupon bonds using texas instruments

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Hi there,
Is there a quick way to answering question below? I have included answer below question, but it takes a while to calculate?

Stellar Corp. recently issued \$100 par value deferred coupon bonds, which will make no coupon payments in the next four years. Regular annual coupon payments at a rate of 8% will then be made until the bonds mature at the end of 10 years. If the bonds are currently priced at \$87.00, their yield to maturity is closest to:

The yield to maturity (r) is computed by solving for r in the following equation:
87.00 = 8/(1 + r)5 + 8/(1 + r)6 + 8/(1 + r)7 + 8/(1 + r)8 + 8/(1 + r)9 + 108/(1 + r)10, which gives a yield to maturity of 6.0%.

• 1

The explanation is conceptually the correct one, but it really should outline how to calculate this on the BA II Plus since it’s a lot easier than what it looks like in the equation. You definitely don’t need to solve for that equation!

On the BA II Plus use CF mode – easy as pie.

Keystrokes:

• CF: to enter CF mode
• Enter CF0 as -87
• Enter C1 to C4 as 0
• Enter C5 to C9 as 8
• Enter C10 as 108
• IRR CPT
• 1

I treat it like an IRR problem of uneven cash flows and use the frequency button to account for series of coupon payment groups. On an hp thats -87 CF0, 0 CFj, 4 Nj, 8 CFj, 5 Nj, 108 CFj, Solve IRR. On a texas, I think you adjust the “F0#”. Sorry not familiar with the key strokes for texas but the process should be similar