# How to find the required rate of return for a coupon bond?

• May 9th 2012, 10:02 PM
AlexM
How to find the required rate of return for a coupon bond?
Given the present value, coupon rate, face value, and term of a coupon bond, is there any easy way of finding the required rate of return without guessing or using a computer to find it for you?

Here is an example:
I am given that the present value of the bond is \$105.35, the coupons are paid annually and are 8%, that the face value is \$100.00 and that there are three years left to maturity (with the next payment being one year from now).

I get from this the equation Attachment 23831
How do I find k?
• May 10th 2012, 08:06 AM
Wilmer
Re: How to find the required rate of return for a coupon bond?
Can't be solved directly; numeric method required

Works a bit like a loan:
Code:

```YR  PAY'T      INT      BALANCE 0                        105.35 1  -8.00      ?          ? 2  -8.00      ?          ? 3  -8.00      ?        100.00```
You can tell that interest has to be lesser than 8%;
6% will do it: try it!