Output not as expected - Zero Coupon Bond Calculator

Question


import java.util.Scanner;

public class zeroCouponBond 
{
    public static void main(String[] args) 
    {
        Scanner usrObj = new Scanner(System.in);
        System.out.print("Face Value of Bond: ");
        int faceValue = usrObj.nextInt();
        System.out.print("Years To Maturity: ");
        int yearsToMaturity = usrObj.nextInt();
        System.out.print("Rate of Interest: ");
        int returnOnInvestment = usrObj.nextInt();

        double BP1 = (faceValue/(Math.pow((returnOnInvestment + 1), yearsToMaturity)));

        System.out.println("Present Bond Value: "+BP1);

    }
}

Input data Face Value - £1000 Years to Maturity - 20 Rate of Interest - 5

Given the formula: F / (1 + r)^t

why do i get 2.73511... I expect 376.89

Put those numbers in your formula and that's the exact number that pops out, 2.7351112277912533887121746361168e-13. How are you doing your math? 1000 / ((1+5)^20) = 2.7351112277912533887121746361168e-13 do note the e-13 — CausingUnderflowsEverywhere, Feb 29 '20 at 16:13
Well excel must have a rounding error then, take a look at how a calculator does it. https://www.wolframalpha.com/input/?i=1000+%2F+%281%2B5%29%5E20 — CausingUnderflowsEverywhere, Feb 29 '20 at 16:19
incidentally the following test data is the same in both this program and excel - 100000, 4, 10 (6.8301....) — spotpush, Feb 29 '20 at 16:19
The interest rate is a percentage. Need to adjust for that in your code? — andrewJames, Feb 29 '20 at 16:34

andrewJames · Accepted Answer · 2020-02-29T21:08:45.393

0

Divide the percentage by 100 (assuming the users are providing "5" meaning "5%"). And use doubles not ints to avoid truncation and loss of precision during the calculation.

double faceValue = 1_000; //usrObj.nextInt();
double yearsToMaturity = 20; //usrObj.nextInt();
double returnOnInvestment = 5; //usrObj.nextInt();
double BP1 = faceValue / (Math.pow(((returnOnInvestment / 100f) + 1), yearsToMaturity));

Also, take a look at BigDecimal - for example here. This is probably more appropriate for your situation (handling money values).

edited Feb 29 '20 at 21:08

answered Feb 29 '20 at 16:39

andrewJames

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Thanks, i was messing around for ages and was getting nowhere. Never would of thought to add this (returnOnInvestment / 100f) to the Math.pow method... – spotpush Feb 29 '20 at 18:42

Output not as expected - Zero Coupon Bond Calculator

1 Answers1