Consider a bond that promises the following cash flows, the yield to maturity is 12%...
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Consider a bond that promises the following cash flows, the yield to maturity is 12% Year 1 2 2 3 4
Promised payments 160 160 170 180 230
You plan to buy this bond, hold it for 2.5 years and then sell the bond Required: What total cash will you receive from the bond after the 2.5 years? Assume that the periodic cash flows are reinvested at 12% If immediately after buying the bond all market interest rates drop to 11% (including your reinvestment rate), what will be the impact on your total cash flow after 2.5 years? How does this compare to part (i)?
B. Consider a bond that promises the following cash flows. The yield to maturity is 1296 Year Promised Payments You plan to buy this bond, hold it for 2.5 years, and then sell the bond 160 160 170 180 230 Required: i What total cash will you receive from the bond after the 2.5 years? Assume that the periodic cash flows are reinvested at 12 % i If immediately after buying this bond all market interest rates drop to 11% including your reinvestment rate), what will be the impact on your total h flow after 2.5 years? How does this compare to part (i)? (4 marks) (4 marks)
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