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Hie John,
Please help I’m having trouble with the pilot paper question GNT CO, i understand that we calculate gross redemption yield using IRR but i dont understand why the market price of the other bond $1,079.68. was deducted from the present value to calculate the IRR? this was the calculation……
i = 4 + [(1,089.01 – 1,079.68)/(1,089.01 – 1,043.27)] = 4.2%
The answer is correct, but the examiners answer has a very strange way of showing it 🙂
The NPV at 5% is 1043.27 – 1079.68 = -36.41
The NPV at 4% is 1089.01 – 1078.68 = +10.33
Therefore the IRR = 4% + 10.33/(10.33 + 36.41) = 4.02%
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