Finance homework help

[oakskier]

10 marks) Harry's Metal Works, Inc., has two bond issues outstanding. The first issue has a coupon rate of 8% and 20 years to maturity. The second has a coupon interest rate of 6.943% and 10 years to maturity. Both issues are payable annually. To the nearest whole percent, what yield to maturity would result in the same current price for the bonds?



HINT #1: Conceptually, the desired yield to maturity represents the crossover discount rate or Fisher rate that generates the same PV of future cash flows for the bonds.



HINT #2: If you are NOT using a financial calculator, the approximate YTM formula may be useful in first finding the common current price B and then finding the desired YTM.

How would you go about solving this?

I have tried setting the two bond valultion formulas equalling each other in order to find the the same present value of each. I just dont know to solove for the yeild to maturity. Help is greatly appreaciated

 

[blackmamba.]

i can only give you a ballpark answer but if you receive the coupon payments only once a year 41.something% YTM should make the market values of the bonds equal (roughly $195 and 50 odd cents)

setup an excel spreadsheet and play around with numbers and/or use solver to figure it out

if you don't have the time to do that use this link

http://www.tvmcalcs.com/calculators/apps/excel_bond_yields

click on "download a spreadsheet'' and plug your values in

 

[skiminnesota]

http://i.imgur.com/Ea1XO.png