CFA CFA Level 1 Financial calculator question

Financial calculator question

  • This topic has 13 replies, 10 voices, and was last updated May-20 by HEDGE81B.
  • Author
    Posts
    • vincentt
      Participant
      Up
      1
      Down

      Hi @student808‌ your answer of 4.896m seems correct. Would it be possible to provide the question, in case you missed out some crucial part in the question. For example, if the question mentioned semi annual coupon payment then your I/Y and N would be different.

    • MM12
      Participant
      Up
      3
      Down

      Hi @student808‌ I believe FV should be the opposite sign of PV (since PV is generally what you pay and FV is what you receive at the end). I don’t know how you arrive at ‘it should be 7.999M’. To be honest when I enter the numbers you provide above I get PV = -5.185…M. Like @vincentt‌ says, can you post the full question please?

    • vincentt
      Participant
      Up
      4
      Down

      As far as I know @mm12 , FV and PMT have to be the same sign but it doesn’t matter if it’s negative or positive as long as PV is the opposite sign to FV & PMT.

    • ibal
      Participant
      Up
      1
      Down

      Could you please provide the entire question. I found that  6.825 (13.65/2) solves the problem with N=10, Pv 7,999,687,FV= 10,000,000,pmt 400,000. You may have misread something or forgotten about using a period adjusted discount rate.

    • Pranav
      Participant
      Up
      2
      Down

      @student808‌ you are getting the correct answer…i am gonna assume you haven’t understood this and hence explaining it below:
      FV = $10,000,000, PMT = $400,000, N = 10, I/YR = 13.65%.
      FV – amount recd at end of 10 years, after compounding at 13.65%
      PMT – amount recd at end of each year for 10 years
      assume, for a minute, that the PMT is 0. This becomes a very simple compound interest problem. The PV value returned would be -2,781,669.953
      This implies that when you invest that PV amount, 10 years later you get the FV amount compounded at I/R annual compounding rate
      now, consider your PMT value…every year, you will be withdrawing 400,000 from the account…so, in year 0, you would have to invest more than the PV value obtained in previous calculation in order to be able to withdraw PMT each year and at the same time get the entire FV at the end of 10 years…so, the PV amount would have to be more…this is obtained in your calculation to be 
      7,999,688, which is correct
      As for the -ve sign, it implies that the money was spent by you. +ve sign implies money was recd by you…you can always revert the signs…

      i hope the above answers your doubt

    • PaulAdaptPrep
      Participant
      Up
      3
      Down

      @student808‌ 

      We just released a CFA calculator guide that covers everything you need in 15 minutes. Calculating Present Value is covered quite thoroughly in the video:
      https://www.youtube.com/watch?v=Ehchb6Zvag0

    • student808
      Participant
      Up
      2
      Down

      Thanks everyone. Here was the original question:
      “Trumpit Resorts Company currently has 1.2 million common shares of stock outstanding and the stock has a beta of 2.2. It also has $10 million face value of bonds that have five years remaining to maturity and 8 percent coupon with semi-annual payments, and are priced to yield 13.65 percent. If Trumpit issues up to $2.5 million of new bonds, the bonds will be priced at par and have a yield of 13.65 percent; if it issues bonds beyond $2.5 million, the expected yield on the entire issuance will be 16 percent. Trumpit has learned that it can issue new common stock at $10 a share. The current risk-free rate of interest is 3 percent and the expected market return is 10 percent. Trumpit’s marginal tax rate is
      30 percent. If Trumpit raises $7.5 million of new capital while maintaining the same debt-to-equity ratio, its weighted average cost of capital is closest to:
      A 14.5 percent.
      B 15.5 percent.
      C 16.5 percent.

    • surangasa
      Participant
      Up
      1
      Down

      Lets first find that the debt-to-equity ratio at current market values for equity is 45% debt and 55% equity. In order to maintain the same debt-to-equity ratio, Trumpit must raise capital in the same ratio. So, $7500000 will be raised with 3.375 Million in debt and 4.125 Million in equity. Cost of equity will be RFR + Beta * (Market risk premium) = 3% + (2.2 * 7%) = 18.4%. Cost of debt is 16%, sans the interest saving. (16% and not 13.5% since they issue over 2.5 Million) So it is, 16% * (1-30%) = 11.2%. Then, the WACC is 18.4*(55/100) + 11.2*(45/100) = 15.16%. 

      I don’t know why you needed PV for this. 
    • surangasa
      Participant
      Up
      0
      Down

      @student808, Well, I am deeply sorry. There is a mistake in my answer. The problem you are facing is that you haven’t accounted to semi-annual nature of the bonds that are currently in issuance. So, when you type I/Y and N type 13.65/2 and 10 respectively which should give you the correct answer of 7999688. 

    • fmccray
      Participant
      Up
      1
      Down

      I would like to do LN
      25.21/25.20 on the calculator. It suppose to equal to 0.00397. i tired the
      division first then, 2nd and LN. could not arrive to the same result.
      also, if you have a binomial model equation
      (P(X)= P(X=X)=(nCx) Px(1-P)n-x. Please note that Px is suppose to be to the
      power and n-x also to the power. How do you do 10C5 on the calculator?

      I have the BAII Plus Texas Instrument.

      Thank you,

       

       

    • mincemeat23
      Participant
      Up
      3
      Down
      fmccray said:

      I would like to do LN
      25.21/25.20 on the calculator. It suppose to equal to 0.00397. i tired the
      division first then, 2nd and LN. could not arrive to the same result.

      Do you mean LN (25.21/25.20)? I got 0.0004. Divide 25.21/25.2, then LN (no ‘2nd’, at least on my BA II+)

    • mincemeat23
      Participant
      Up
      5
      Down
      fmccray said:

      How do you do 10C5 on the calculator? 

      10 > 2nd > nCr > 5 > = 252

    • fmccray
      Participant
      Up
      4
      Down

      Thank you so much. This is going to save me a lot of time. i just noticed that nPr(Permutation) is right above it on the calculator.

    • HEDGE81B
      Participant
      Up
      2
      Down

      can a BA II PLUS calculator solve algebra such as the following?
      80 = 100/(1 + r) ^10 
      thank you!

Viewing 13 reply threads
  • You must be logged in to reply to this topic.