What is the total cash you will receive from holding bond

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Reference no: EM131831061

Consider a bond that promises the following cash flows.

year 0 : 170

year 1: 170

year 2 : 180

year 3: 190

year 4: 230

The yield to maturity is 10%. You plan to buy this bond, hold it for 2 years, and then sell it.

a. What is the total cash you will receive from holding the bond for 2 years? Assume that cash flows are reinvested at 10% yearly interest rate.

b. If, instead, immediately after buying this bond all market interest rates drop to 9% (including your reinvestment rate), how would this affect your total cash flow after 2 years? How does this compare to part (a)?

Reference no: EM131831061

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