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This question will require you to use Excel's Rate function.You can use the IRR function, but in case of an Annuity with a large number of periods,...
This question will require you to use Excel's Rate function.You can use the IRR function, but in case of an Annuity with a large number of periods, it can become cumbersome.
A firm purchases Treasury bonds for $250,000. The Face Value of the bonds are $300,000. It receives yearly coupons of $12,000 for 8 years. At the end of 8 years the firm receives the Face Value of $300,000 plus the coupon payment for the 8th year, and then the bonds are extinguished.
What is the IRR from the investment in the bonds?
Here is an example of the format of Excel's RATE function:
=RATE(3,10,-100,150,0,0.1)
3 is the number of periods, 10 the periodic payments, -100 the time 0 cash flow, and 150 the additional cash flow on the last period.
The 0, is format saying the payments occur at the end of every period, and 0.10 is the initial guess for the return.
Express your answer as a percentage; for example, the answer 3.18% should be entered as 3.18 without the % sign.
