Question

An investor purchased a bond for $550 that has the following cash flows: the principal is $600, over n = 5 years the bond will pay 8% coupon annually. Find the IRR of these cash flows (also called Yield to Maturity):Note: the principal is the amount that a bond pays at the end of its maturity (5-th year in this case) and the coupon is just a periodic payment equal to “coupon rate” * “Principal” (0..08*600 = $48 in this case)

Answer 1

IRR is computed using Excess IRR function as follows.

In year 5, Total cash flow = Principal + Coupon = $600 + $48 = $648

Year	Cash flow ($)
0	-550
1	48
2	48
3	48
4	48
5	648
IRR =	10.21%