Question

A bond is currently selling for $1,300 and pays $65/year (on an annual basis) for 10 years. What is the IRR of the bond? (Note that this is the same as asking the bond’s YTM.)

Answer 1

IRR is the rate at which present value of future cash In flows are equal to Present value of Outflows

or IRR is the rate at which NPV is "Zero".

Given deatils:

Current price = $ 1300

Dividend = $ 65

TIme period = 10 years

Maturity Value = $ 1000 ( Assumption Par value redumption @ 1000)

IRR Computation:

IRR = (Rate at which +ve NPV) +{(+ve NPV at that rate / Diff in NPV due to 1% change ) * 1

= 2% + ($ 104.22 / $293.35) * 1%

= 2% + 0.35%

= 2.35%

IRR is 2.35%

Pls comment, if any further assitance is required