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
