Reference no: EM133071686

Question: Assume that you bought an original issue 20-year General Electric (GE) bond with a 7.5% coupon, $1,000 par, paying coupons semi-annually (twice a year, every six months). You bought the bond just after the 10th coupon payment was paid at a time when the YTM on the bond was 6.2%.

A). What is the price of the bond at this date?

Suppose that you held the bond for a while, and then sell it on the date of the 15th coupon payment (i.e., on the date of the 15th coupon payment you received both the coupon payment and the proceeds from the sale of the bond). At the time of sale, the YTM on the bond was 4.2%.

B) What is the price of the bond at this date?

C) Draw the timeline (by hand or in Excel) and show the cash flows from the date you purchased the bond until the date you sold the bond (show your purchase price at the time you bought the bond, and label your purchase date as t0 on your timeline). Be sure to include both the coupons and purchase/sale cash flows.

D) Calculate the (annualized) IRR of your bond transaction. This will involve calculating the 6-month discount rate that makes your investment NPV=0, and then compounding this twice to get the annual equivalent.