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Hello Sir,
Could you show me the steps in arriving at percentage yield to maturity in this question?
A bond with a coupon rate of 7% is redeemable in 8 years time for $100. Its current purchase price is $82.
Thank you!
Hi,
Welcome to Open Tuition.
To work out the yield to maturity to you need to calculate the IRR of the cash flows using linear interpolation. If you start with a guess of 10% and work out the NPV to see if it is positive or negative you can then use an educated second guess to work out the NPV again.
Using these two sets of figures, being the discount rates and NPVs, you can calculate the IRR using linear interpolation. This figure is then your yield to maturity.
Hope this helps.
Thanks
Hello Sir,
Thank you!
I have watched all the lectures/videos available under F1. They are of great value. I think it would be great to have a short lecture/video on “Bonds” too.
Hi,
Thanks for the kind comments. I’ll arrange to record a video at some point in the future and include extra notes but I still don’t think it is in the syllabus. If you look in the detailed syllabus it doesn’t state anywhere that students are required to calculate the figures we have done above. Please correct me if I’m wrong. I’ll get in touch with CIMA to double check though.
Thanks
Hello Sir,
What you say is true. But I have a doubt cause in the Revision kit Published by Kaplan they have given five questions on bonds. Some asking to calculate YTM and some asking current market price of the bonds. I would really appreciate if you could let us know whether it is really required.
Thanks!
I would also like to know if this is in the syllabus for F1 as there are quite a few practise questions on it
Did anybody get to the bottom of this? I am facing the same problem, I can’t find this in the syllabus but there are a lot of questions in the Kaplan Revision Kit.
The same is for the the Miller-Orr & Baumol models – do these need to be learned for F1?
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