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Math Help - Finding the yield on two bonds.

  1. #1
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    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.
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  2. #2
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    Re: Finding the yield on two bonds.

    Are you looking for the yield to maturity?
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  3. #3
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    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.
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