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    What is the IRR of a ten-year bond with 6% annual coupon and 5% YTM?

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    Suppose you purchase a ten-year bond with a 6% annual coupons. You hold the bond for four years and sell it immediately after receiving the fourth coupon. If the bond's yeild to maturity was 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 internal rate of return of your investment?

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    Solution Preview

    See attached files.

    Suppose you purchase a ten-year bond with a 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.

    a. What cash flows will you pay and receive from your investment in the bond per $100 face value?

    We need to calculate how much we are willing to pay for the bonds by using the formula as follows: -

    where B is the issued price
    C is the coupon payment
    r is the discount or yield ...

    Solution Summary

    This solution shows what cash flows will you pay and receive from your investment in the bond per $100 face value in an attached Word and Excel file.

    $2.19

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