Mar/Jun 17 - Valuation and yield to maturity of bond

The MV is as always the PV of the future receipts discounted at the relevant returns. 4.81% is the 1 year return, so for bond 2 the MV is equally to the interest in 1 year of 7 discounted at 4.81% plus the receipt of 107 in 2 years discounted at the 2 year return. So using simple algebra we can calculate the 2 year return, It is the same logic for bond 3.

Because the bonds are all the same risk and therefore the rate for time 1 is applies to the time 1 receipt for all of the bonds. There is no specific lecture on using the different rates for each year, but the method of valuing bonds is obviously covered in the lectures and there is a Technical Article on the ACCA website covering what is examined in this question.

Chapter 11 (although the lectures are meant to be watched in order as a complete course - not watched piecemeal). The basic valuation of debt is revision also from Paper FM.