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Hello John,
Sorry for contacting you again. But I am currently trying to find a lecture or a detailed explanation and calculation of the yield to maturity of bonds, which is a 10 or 11 marks question in the exams once in a while, but there is not much about it in the Kaplan Study Text and neither in open tuition lecture notes. Is there a free lecture on that topic and if so, in what chapter?
And I also wanted to say how impressed I am by the free lectures which make so many topics understandable! In addition, the ability to contact you directly and the quick responses and the great clarification are all excellent! I am taking my 12th exam and just realised with the AFM exam how great open tuition is and have been using it the first time unfortunately. I purchased an online course for about 250 Pounds, but it is by far not as good as your lectures!
Thanks again for your help!
MargaritaThank you very much for your comments 🙂
The yield to maturity is the return to investors (also called the redemption yield) which is calculated as the IRR of the pre-tax flows (and is effectively the pre-tax cost of debt). It is pre-tax because the investors are not affected by company tax and is the investors required rate of return that determines the market value of the debt. Tax is only relevant when calculating the cost of debt to the company.
I explain this in my lectures on Chapter 11 of our free lecture notes.
More recently the examiner has set specific more complicated questions on the yield to maturity and so do also read the technical article on the ACCA website on bond valuations:
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