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It is the IRR of the returns to the investor.
As always for the IRR we make two guesses and approximate between them. The examiner has used 5% and 4% as the guesses, but any two sensible guesses will do.
Good day sir, for GNT Co(part b) i will like to know is my understanding correct or not.
Par value = Market value if coupon rate = rate of return. So if market value (total present value of future cash flow) increase means the rate of return is reducing. Vice versa.Rate of return/yield/ yield to maturity/interest rate is the market discounting factor that can be used to find market value of the bond now.
Please do correct me if i am wrong sir, thank you in advance. 🙂
What you have written is correct. However the question asks about the usefulness of the duration as a measure of the sensitivity so more is needed to get the marks.
Have you watched my free lectures on the Macauley duration?
yes sir, i have watched it and from that i got a clearer understanding thats why i wanted to confirm with sir whether what i have understand is correct or not. I wanted to understand the overall relationship between the bond price, interest rate and also the duration so that i could understand better when i read the answer from the exam kit.
Thank you so much for confirming on my understanding sir 🙂
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