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Dear Mr Moffat,
First, thank you for your help. I appreciate that you are helping us even on a Sunday.
Would you mind explaining how the 4% redemption yield has been calculated with the following information:
Issue 6% redeemable bonds quoted at 120% ex int.
I can’t see how to calculate the IRR without the redemption date?
Thank you.
CatherineThe question you refer to does not require you to calculate the redemption yield (you cannot be asked to calculate it in F9).
You can calculate the interest yield (6/120 = 5%).
Since the market value is 120 (and the question says they will be redeemed at a lower value) the redemption yield must be lower than 5%.
Only one of the four choices has an interest yield of 5% and a redemption yield that is lower.
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