present value function

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DAB - 31 Mar 2006 23:52 GMT

I am trying to use the PV Function to calculate present value of a bond with
a face vaule of $1.5, 20 years, 12% stated rate paid semi annual with an
effective rate of 10. When I input the data using this function
=PV(5,20,-90000,-1500000) - the value comes out as $18,000 and it should be
1,686,934 - what am I doing wrong?

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renegan - 01 Apr 2006 00:02 GMT

When you put 5 on your formula it is 500%, enter 0.05 it should work

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Fred Smith - 01 Apr 2006 00:08 GMT

First, pv and pmt in your formula need different signs, because you pay for the
bond, but receive the interest.

Second, you need to specify the interest rate as 5%, not 5.

Third, the period of your interest rate and term must match. You have 5%
semi-annual interest, therefore you have 40 semi-annual periods.

Fourth, what you really want is the Price function (in the Analysis Tookpak). It
will calculate the price of the bond properly for you, which you can then
multiply by the face amount to get the present value.

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Regards,
Fred

>I am trying to use the PV Function to calculate present value of a bond with
> a face vaule of $1.5, 20 years, 12% stated rate paid semi annual with an
> effective rate of 10. When I input the data using this function
> =PV(5,20,-90000,-1500000) - the value comes out as $18,000 and it should be
> 1,686,934 - what am I doing wrong?

Reply to this Message