Question

In: Finance

Suppose you are reviewing a sheet for a bond portfolio and see the following information. These...

Suppose you are reviewing a sheet for a bond portfolio and see the following information. These bonds have a par value of 100 and make semiannual coupon payments.

Bond

Coupon rate

Number of years

Price

A

6

2

90

B

8

3

80

C

10

4

110

What is the yield to maturity of the bond portfolio based on the IRR calculation?

Solutions

Expert Solution

The cash flows of each bond are :

Period 0 = -bond price (This is entered with a negative sign because it is a cash outflow to buy the bond today)

Subsequent periods (except final period) = semiannual coupon payment = par value * coupon rate / 2

Final period = semiannual coupon payment + par value

Then, IRR is applied to the cash flows. This gives the semiannual YTM. To get annual YTM, we multiply by 2.

The YTM of the bond portfolio is 11.08%

jeff jeffy answered 1 year ago
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