Question

Suppose you purchase a​ 10-year bond with 6.6 % 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 5.2 % 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?

a.  The cash flows are as​ follows:  ​(Round to the nearest​ cent.)

Year	0	1	2	3	4
Cash flow	​$nothing	​$nothing	​$nothing	​$nothing	​$nothing

b. The internal rate of return of your investment is %.

​(Enter your response as a percent rounded to one decimal​ place.)

Answer 1

Year 0=PV(5.2%,10,-6.6%*1000,-1000)=1107.06

Year 1=6.6%*1000=66

Year 2=6.6%*1000=66

Year 3=6.6%*1000=66

Year 4=6.6%*1000+PV(5.2%,6,-6.6%*1000,-1000)=1136.607442

IRR=IRR({-1107.06;66;66;66;1136.607442})=5.200%