Calculating interest rate in bonds

Hi there is a formula for calculating bonds value: To calculate a bond’s price, we can use the basic present value (PV) formula:

C = coupon payment

i = interest rate, or required yield

M = value at maturity (par value)

n = number of payments

In my situation I have every information except 'i' how can i write a program to calculate 'i'? is there any program in matlab? thank you

Answer 1

[Torsten]

C = ...;
M = ...;
n = ...;
Bond_price = ...;
fun=@(i)C*(1./(1+i)-1./(1+i).^(n+1))./(1-1./(1+i)) + M./(1+i).^n - Bond_price;
i0 = 0.2;
sol_i = fzero(fun,i0)

sol_i is equal to the i in your equation if you give meaningful values to C, M, n and Bond_Price.

Hint for a derivation: Geometric series.

Best wishes

Torsten.