# Finding the yield on two bonds.

• Apr 19th 2012, 02:56 PM
laurier51
Finding the yield on two bonds.
A \$1000 bond with coupons at j2 = 10% (10% compounded semi-annually) is redeemable at par in "n" years. It is purchased at a premium of \$300. Another \$1000 bond with coupons at j2 = 8% is also redeemable at par in "n" years. It is purchased at a premium of \$100 on the same yield basis as for the first bond. [That is, both n and the yield are the same for both bonds.] Calculate the unknown yield rate(as a rate compounded semi-annually).

Now I know a basic formula for yield is earnings over price paid, which would make it 100/1300 for the first bond and 80/1100 for the second, but this gives me two different rates, and I feel like you have to use both bonds simultaneously to find the yield. Any help with this would be appreciated.
• Apr 21st 2012, 10:45 AM
Cheerios
Re: Finding the yield on two bonds.
Are you looking for the yield to maturity?
• Apr 23rd 2012, 02:33 PM
laurier51
Re: Finding the yield on two bonds.
Yes, I believe so.

Now that I look at it I think it just requires a bit of algebra to solve for n in one equation and plug it into the next. From there I can use linear interpolation to solve for yield.