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I agree that what is done with the income-stream subsequent to receiving it is irrelevant to calculating the yield offered by the original investment.

In your counter example, you assume a 5% inflation-rate, create a bond with a 5% coupon due in due years, and then assume you will break even with respect to retaining purchasing-power. I say that owing such a bond creates an average loss of purchasing-power of -2.04% per year. So clearly, we think about the math of inflation very differently.

If you're happy with the methods you use to calculate bond-yields, then stick with them. But I can show that all conventional methods overstate what an investor will actually be able to spend. Also, though I do my work in Excel, I don't depend on their assumptions. I've created my own formulas, because I kept running into situations that required such a tool, and nothing existed that would do the job.

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