BPP 34. GNT Co (Pilot Paper) Gross Redemption Yield

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 :)

You are welcome :-)