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