Calculation Of Annual Yield Of Coupon Investment


Prudence buys a bond in EUR when it issued by the French government and inflation linked. It offers a 2% yearly coupon. She holds it for five years.

Par value: EUR 10,000

Price paid: EUR 10,100

Coupon paid yearly at the end of the year

 Inflation:         Year 1         2%

                        Year 2         3%

                        Year 3         1%

                        Year 4         1%

                        Year 5         2%

The coupon is reinvested each year at 1% compounded yearly.

At the end of the five years, how many EUR does Prudence have?

What is her average annual yield (or rate of return)?

What was the total price increase (i.e. increase in the CPI) over the five years?

By what percent has her purchasing power increased with the bond money over the five years.

HINT: the effective par value is increased by the inflation each year. Assume the coupon is paid as a function of the (adjusted) par value of the bond at the end of the same year, and that after five years the full adjusted par value is paid plus, of course, the last coupon.



The question belongs to Finance and it discusses about calculating average annual yield, total price increase and the percent of purchasing power increased for a period of time for coupon investment has been given.

Total Word Count NA

Download Full Solution


  • HWA

    this is a very good website

  • HWA

    I have 50 questions for the same test your page is showing only 28

  • HWA

    hi can you please help or guide me to answer my assignments. thanks

  • HWA

    hi can anyone help or guide me to my assignments. thanks

  • HWA

  • HWA

    This solution is perfect ...thanks

  • HWA

    Hello Allison,I love the 2nd image that you did! I also, had never heard of SumoPaint, is something that I will have to exolpre a bit! I understand completely the 52 (or so) youtube videos that you probably watched. Sometimes they have what you want, sometimes they don't! However, it is always satisfying when you are able to produce something that you have taught yourself. Great job!Debra 0 likes

  • HWA

    Perfect bank of solution. 

  • HWA

    great !

  • HWA
    Paul Brandon-Fritzius

    thanks for the quick response. the solution looks good. :)

  • HWA
    tina Johnson

    thnx for the answer. it was perfect. just the way i wanted it. 

  • HWA

    works fine.