A bond is currently selling for $1,300 and pays $65/year (on an annual basis) for 10...

A bond is currently selling for $1,300 and pays $65/year (on an annual basis) for 10 years. What is the IRR of the bond? (Note that this is the same as asking the bond’s YTM.)

Expert Solution

YTM = 3%

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Yield to maturity is the rate of return the investor will get if he/she hold the bold till maturity period

So YTM is like internal rate of return, if we discount all the cash inflow from the bond using YTM, the present value will be equal to the bond current price.

YTM is calculated using Excel, the function used is (IRR)

Pls refer below table

Year	Cash flow	Amount
0	Bod price (Outflow)	-1300
1	Coupon (Inflow)	65
2	Coupon (Inflow)	65
3	Coupon (Inflow)	65
4	Coupon (Inflow)	65
5	Coupon (Inflow)	65
6	Coupon (Inflow)	65
7	Coupon (Inflow)	65
8	Coupon (Inflow)	65
9	Coupon (Inflow)	65
10	Par + Coupon (Inflow	1065
	YTM	2.99%
	Formula	=IRR(G44:G64)

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Hope that helps.

Feel free to comment if you need further assistance J

jeff jeffy answered 2 years ago

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