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Sir in calculating the coupon rate for the bond with an issue price of $100 & equal to its par value can you explain how to approach to find the coupon rate? IRR can be used to calculate the required rate of return & if we go along the lines of pv of the bond is equal to its future cash flows, you get the coupons and redemption value equal to $100.
(R*1.0385)^-1 + (R*1.0446)^-2 …+(100+R)*1.0612^-5 = 100
In the answer, in the alternative method for the 5th year they have deducted 5 from the PV of the redemption amount what is the reason for this??
Answer provided,
(R*1.0385)^-1 …..+(R*1.0612)^-5+(100*1.0612-5) =100The two equations that you have typed are actually exactly the same.
The last term in the first equation (100 + R) x 1.0612^(-5) is the same (when you multiply through) as 100 x 1.0612^(-5) + R x 1.0612^(-5)
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