Share
Explore BrainMass

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

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?

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