Suppose a friend of yours invested in an outstanding bond with Purple Pottery. The bond has an annual coupon rate of 10%, a remaining maturity of 15 years, and a $1,000 par value. The market interest rate is currently 8%.

In order to use a financial calculator to compute how much your friend paid for the bond, you will need to know the following information

I/Y:	the market rate of the interest on the bond
N:	the number of years before the bond matures
PMT:	dollars of interest paid each year
FV:	the par, or maturity, value of the bond

Compute the amount of interest paid each year by completing the following math derivation. Select this same value from the PMT drop down menu found in the following financial calculator table.

Amount of InterestAmount of Interest	= =	Coupon RateCoupon Rate		Par ValuePar Value
	= =
	= =

Next, enter the number of years before the bond matures into the N cell of the following financial calculator table.

Remember that the going rate of interest is what determines the market price of a bond. Therefore, this is the value that you would need to enter into your financial calculator. Enter the market interest rate into the I/Y cell of the following financial calculator table.

Using a financial calculator, compute the present value of the cash flows this asset is expected to produce. Enter this value into the final row of the following table.

Note: Make sure your calculator is set to END mode.

Input					$1,000
Keystroke	N	I/Y	PV	PMT	FV
Output

The absolute value of the present value your calculator computed is the market price of the bond.

Because the market price is the par value, your friend purchased a bond.