You don’t have to make random guesses about what the interest rate might be. Now, you have to solve for i using trial and error, plugging in different values for i until you get the correct price.Įstimate the interest rate by considering the relationship between the bond price and the yield.Once you have that information, plug it into the formula P = C ∗ ( ( 1 − ( 1 / ( 1 + i ) n ) ) / i ) + M / ( ( 1 + i ) n ). Also, you need to know the amount of each coupon payment you will receive and the number of coupon payments until maturity. You need to know the face value of the bond and the present value, or purchase price. This numerical approach can be implemented to solve the value of desired interest rate from the obligation by using the same calculation step and algorithm.Gather the information and plug it into the formula. By using this method, there are still any differences of calculation result, but it’s not significant. There is only approximation of 4 digits in decimals for the result. This method gives the same result if it is compared with several methods mentioned above for the same case. In this method, the numerical case must be transferred into the NPV equation or obligation equation, and be created to the polynomial equation in term of f(x) until the error is minimum. IRR Function in Excel Software but the most popular is Newton Raphson Method. As we know there are several methods to solve the calculation about IRR ,such as Interpolation Method by using the financial table and Trial and Error Method by using. This paper will present the application of numerical mathematic and discuss the alternative method to calculate and solve the problem about the value of Internal Rate Return (IRR) and desired returned rate by obligation investor. This numerical approach can be implemented to solve the value of desired interest rate from the obligation by using the same calculation step and algorithm. As we know there are several methods to solve the calculation about IRR ,such as Interpolation Method by using the financial table and Trial and Error Method by using IRR Function in Excel Software but the most popular is Newton Raphson Method.
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