1. A $10,000 corporate bond matures in one year, meaning that it returns $10,000 principal to...

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1. A $10,000 corporate bond matures in one year, meaning that itreturns $10,000 principal to the owner in one year. The bond alsomakes four quarterly interest payments on the way to maturity: itpays $150 after three months, $150 again after six months $150again after nine months, and a final interest payment of $150 atthe same time that the principal is returned.
(a) Based on the $10,000 original price of the bond, and the sumof the interest payments received per year, what is the originalrate of interest on the bond?
(b) If after four months the yield on the bond is 5%, thencalculate its price to the nea rest dollar.
(c) If after four months the current market price of the bond isexactly $10,100, then show exactly how to calculate the internalrate of return on the bond. Based on your answer to part (b), whatcan you immediately say about the internal rate of return (withoutdoing any calculations)?
(d) Continuing part (c), and using a calculator, find theinternal rate of return on the bond to the nearest hundredth of apercent.

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a Total Sum of Interest Payments 1504 600 Original Rate of Interest per year 60010000100 6 b Price of the bond is represented by the present value of future cash inflows One month See Answer

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1. A $10,000 corporate bond matures in one year, meaning that itreturns $10,000 principal to the owner in one year. The bond alsomakes four quarterly interest payments on the way to maturity: itpays $150 after three months, $150 again after six months $150again after nine months, and a final interest payment of $150 atthe same time that the principal is returned.(a) Based on the $10,000 original price of the bond, and the sumof the interest payments received per year, what is the originalrate of interest on the bond?(b) If after four months the yield on the bond is 5%, thencalculate its price to the nea rest dollar.(c) If after four months the current market price of the bond isexactly $10,100, then show exactly how to calculate the internalrate of return on the bond. Based on your answer to part (b), whatcan you immediately say about the internal rate of return (withoutdoing any calculations)?(d) Continuing part (c), and using a calculator, find theinternal rate of return on the bond to the nearest hundredth of apercent.