Question

Is it possible to calculate the following exercise by hand / with an annuity table. I have no idea about Excel and am not allowed to use neither Excel nor a financial calculator in my exam (just a non-programmable calculator)? Thanks in advance for helping.

A €100, 10 year bond was issued 7 years ago at a 10% annual interest rate. The current interest rate is 9%. The current price of the bond is 100.917. Use annual, discrete compounding.

Calculate the bonds YTM

Answer 1

As you see that the price of the bond is more than 100, ytm must be less than coupon rate or 10%.
So, now u have to use annuity table for rates less than 10%.

100.917=10%*100*(P/A,i,3)+100*(P/F,i,3)

P/A,i,3 means refer to the annuity table to find the present value factor for n=3 years

P/F,i,3 means refer to the future table to find the present value factor for n=3 years

So, you have to use trial and error to find i such that the below equation holds

100.917=10%*100*(P/A,i,3)+100*(P/F,i,3)