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Hi, there is a confusion relating to the formula of interpolation in YTM bond valuation, which is
[ LDR+{NPV at LDR-MP / NPV at LDR-NPV at HDR} ×(HDR-LDR) ]
As in ytm bond valuation it says we are actually caculating the IRR at which the present value of the future interest payments and the redemption value of the bond at maturity are equal to the market value of the bond
BUT… as the formula of interpolation for IRR calculation which i studied in project appriasal section is ….[LDR +{NPV at LDR / NPV at LDR -NPV at HDR} ×(HDR-LDR)]*** LDR= lower discount rate , HDR= higher discount rate , MP=market price
is it not the same formula we would use ??? why the inclusion of MP in the formulaHi- Really sorry – I cant help with this,
Net present value/ WACC hasn’t been on CIMA P1 syllabus for 9 years ( it was 2010 last examined for CIMA P1)
Apologies – if you are using this question to prepare for CIMA P1 exam then you can scrap & ignore ? ( These areas are not examinable at all)
Many thanks
Cath
ps) do check the latest CIMA blueprints for what to expect for your P1 exam – just to check the material that your tutor/ book/ notes that you are using have been updated for last syllabus change ( eg 2019 – major revision for all papers).Link is below:
https://www.cimaglobal.com/examblueprints
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