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    Calculating average return of an investment in a bond

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    Suppose an 8% coupon, ?1000 face value, 30-year bond that makes semiannual coupon payments is selling ?1276.76. What average rate of return would be earned by an investor purchasing this bond at this price?

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    Solution Preview

    Please refer attached file for calculating Return by using Excel. Following is the methodology to calculate average return without using MS Excel.

    Solution :
    Mathematically price of a bond is defined as summation of all PV's of all future payments
    No. of periods=60
    Coupon payment=40

    Sum of all PVs of future ...

    Solution Summary

    The solution describes the methodology to calculate average return earned on an investment in a coupon paying bond by using functions in MS Excel and without using MS Excel.