Let's figure out the yield on a coupon paying bond. Eve paid 775,000 for 1 million face value of notes that have a 5.75% annual coupon and matures in six years. What will Eve's return be if she holds the bond to maturity? What is the yield on this bond? Well, we know what the PV is, we know what the face value is. We know the number of years to maturity 6. We've just gotta figure out what the annual coupon payments are. Well, in this case, very simple, 5.75% times the face value of the bond. Now we have enough information to figure out all the cash flows.

So first of all, what are the cash flows now? Well that is what Eve is paying for that bond, 775,000, and that's a negative number because that is what she's paying. In the future, she will receive a number of cash flows. First of all, she will receive the annual coupon payment, the 57,500 for the next five years.

Finally, in year six, she will receive the coupon payment as well as the face value of the bond. So the total payment that year will be the coupon plus the face value. Now we have detailed all the cash flows of this bond, the payment, as well as the coupons and the face value. All we've gotta figure out now is the internal rate of return for this bond.

So choose the IRR function in Excel, highlight the area, close the bracket, Excel will now figure out the internal rate of return or the yield for this bond, and it will understand that those are annual cash flows. Hey, denture, we'll see the IRR in this case, 11.1.