Answer:
Step-by-step explanation:
The Full question is "Suppose you purchase a 10-year bond with 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% when you purchased and sold the bond, what cash flows will you pay and receive from your investment in the bond per $100 face value?"
Face Value = $100
YTM = 5%
Annual Coupon = 6% * $100 = $6
Purchase Price = $6*PVIFA(5%, 10) + $100*PVIF(5%, 10)
Purchase Price = $6*(1-(1/1.05)^10)/0.05 + 100/1.05^10
Purchase Price = $107.72
Selling Price = $6*PVIFA(5%, 6) + $100*PVIF(5%, 6)
Selling Price = $6*(1-(1/1.05)^6)/0.05 + 100/1.05^6
Selling Price = $105.08
Cash Outflow at Year 0 = $107.72
Cash Inflow at Year 1 = $6
Cash Inflow at Year 2 = $6
Cash Inflow at Year 3 = $6
Cash Inflow at Year 4 = $6 + $105.08 = $111.08
B. The internal rate of return of your investment = 5.001% (Find attach the calculation)