Ch7 IRR Handout

Ch7 IRR Handout - IRR10yrcorporatebond...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
IRR 10 yr corporate bond Pays $40 interest every 6 months Bond life: 10 yrs Sold at 9 years for $950 Find IRR 1) Initial screening Benefits = $40 x 18 + 950 = $1,670 > $1000 continue 2) Set up equations PW costs = -$1,000 PW benefits = A (P/F, i, n 1 ) + A (P/F, i, n 2 ) + A (P/F, i, n 3 ) + … + (A+S) (P/F, i, N) = 40 (P/F, i, 1) + 40 (P/F, i, 2) + 40 (P/F, i, 3) + … + 990 (P/F, i, 18) NPW = PW benefits – PW costs = 0 NPW 3) Find root, i* Trial and error i NPW 0% 670 5% 138 4% 25 3.5% -39 Interpolate
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 AB C D E F G Yr Cash Flow PW
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

Ch7 IRR Handout - IRR10yrcorporatebond...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online