Consider a bond that promises the following cash ows. The required discount rate is 12%. Year 0 1 2 3 4 Promised Payments 160 170 180 230 You plan to buy this bond, hold it for 2.5 years, and then sell the bond. a.What total cash will you receive from the bond after the 2.5 years? Assume that periodic cash ows are reinvested at 12%. b.Assuming all market interest rates are 12%, what is the duration of this bond?
Consider a bond that promises the following cash ows. The required discount rate is 12%. Year 0 1 2 3 4 Promised Payments 160 170 180 230 You plan to buy this bond, hold it for 2.5 years, and then sell the bond. a.What total cash will you receive from the bond after the 2.5 years? Assume that periodic cash ows are reinvested at 12%. b.Assuming all market interest rates are 12%, what is the duration of this bond?
Chapter5: The Cost Of Money (interest Rates)
Section: Chapter Questions
Problem 13PROB
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Question
Consider a bond that promises the following cash ows. The required discount rate is 12%.
Year |
0 1 2 |
3 4 |
Promised Payments |
160 170 |
180 230 |
You plan to buy this bond, hold it for 2.5 years, and then sell the bond.
a.What total cash will you receive from the bond after the 2.5 years? Assume that periodic cash ows are reinvested at 12%.
b.Assuming all market interest rates are 12%, what is the duration of this bond?
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