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Redemption Yield

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Redemption Yield

  • This topic has 1 reply, 2 voices, and was last updated 10 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
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  • May 31, 2015 at 10:44 am #250881
    cdmgaultier
    Member
    • Topics: 2
    • Replies: 1
    • ☆

    Dear Mr Moffat,

    First, thank you for your help. I appreciate that you are helping us even on a Sunday.

    Would you mind explaining how the 4% redemption yield has been calculated with the following information:

    Issue 6% redeemable bonds quoted at 120% ex int.

    I can’t see how to calculate the IRR without the redemption date?

    Thank you.
    Catherine

    May 31, 2015 at 11:32 am #250917
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    The question you refer to does not require you to calculate the redemption yield (you cannot be asked to calculate it in F9).

    You can calculate the interest yield (6/120 = 5%).

    Since the market value is 120 (and the question says they will be redeemed at a lower value) the redemption yield must be lower than 5%.

    Only one of the four choices has an interest yield of 5% and a redemption yield that is lower.

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