Suppose you purchase a 10-year bond with 11% annual coupons. You hold the bond for four years and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 9.08% when you purchased and sold the bond, a. What cash flows will you pay and receive from your investment in the bond per $100 face value? b. What is the internal rate of return of your investment? Note: Assume annual compounding.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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A 279.

Suppose you purchase a 10-year bond with 11% annual coupons. You hold the bond for four years and sell it
immediately after receiving the fourth coupon. If the bond's yield to maturity was 9.08% when you purchased and sold
the bond,
a. What cash flows will you pay and receive from your investment in the bond per $100 face value?
b. What is the internal rate of return of your investment?
Note: Assume annual compounding.
a. What cash flows will you pay and receive from your investment in the bond per $100 face value?
The cash flow at time 1-3 is $
(Round to the nearest cent. Enter a cash outflow as a negative number.)
Transcribed Image Text:Suppose you purchase a 10-year bond with 11% annual coupons. You hold the bond for four years and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 9.08% when you purchased and sold the bond, a. What cash flows will you pay and receive from your investment in the bond per $100 face value? b. What is the internal rate of return of your investment? Note: Assume annual compounding. a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flow at time 1-3 is $ (Round to the nearest cent. Enter a cash outflow as a negative number.)
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