Suppose you purchase a 10-year bond with 6.4% 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 5.5% 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 annual rate of return of your investment? a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flows from the investment are shown in the following timeline: (Round to the best choice below.) A. Year 2 3 Cash Flows -$110.90 $6.40 $6.40 $6.40 $104.50
Suppose you purchase a 10-year bond with 6.4% 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 5.5% 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 annual rate of return of your investment? a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flows from the investment are shown in the following timeline: (Round to the best choice below.) A. Year 2 3 Cash Flows -$110.90 $6.40 $6.40 $6.40 $104.50
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
Problem 1PS
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Transcribed Image Text:Suppose you purchase a 10-year bond with 6.4% 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 5.5% 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 annual rate of return of your investment?
a. What cash flows will you pay and receive from your investment in the bond per $100 face value?
The cash flows from the investment are shown in the following timeline: (Round to the best choice below.)
A. Year
0
1
2
3
4
Cash Flows $110.90
$6.40
$6.40
$6.40
$104.50
B. Year
0
1
2
3
4
Cash Flows - $106.78
$6.40
$6.40
$6.40
$110.90
C. Year
0
2
3
4
Cash Flows $104.50
$6.40
$6.40
$6.40
$110.90
OD. Year
1
2
3
Cash Flows $106.78
$6.40
$6.40
$6.40
$110.90
b. What is the annual rate of return of your investment?
The annual rate of return of your investment is %. (Round to one decimal place.)
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