Bonds

A bond has a stated coupon rate, par value, redemption value, term, and required yield, and you must price it.

Use the basic bond price formula: PV of coupons (level annuity at the yield) plus PV of redemption. Watch for redemption value not equal to par (callable bonds or special securities) and for semiannual coupons (use half the annual rate and twice the number of periods). Verify whether the yield is quoted as nominal convertible semiannually or as effective annual.

P = Fr · a-angle-n + C · v^n, valued at the yield rate i.

A bond is bought at a premium or discount to par and you must track book value, coupon income, and amortization of premium or accretion of discount across periods.

Build a row-by-row schedule: interest earned = book value × yield, premium amortized (or discount accreted) = coupon - interest earned, new book value adjusted accordingly. The book value converges to the redemption value at maturity. Recognize that premium amortizes downward toward redemption; discount accretes upward.

Book value at time t = Fr · a-angle-{n - t} + C · v^{n - t}.

A bond price is given along with coupon, redemption, and call schedule, and you must find the yield.

Set the PV of cash flows equal to the price and solve for i. On the BA II Plus, use the bond worksheet or TVM keys with the call date as N when checking yield-to-call. For callable bonds, evaluate every plausible call date and take the worst (lowest yield) from the issuer's standpoint — the yield-to-worst.

Yield-to-call uses the call date and call price in place of maturity and redemption.