Suppose you purchase a 10-year bond with 4% annual coupons. You hold the bond for four years,
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Suppose you purchase a 10-year bond with 4% annual coupons. You hold the bond for four years, and sell it immediately after receiving the fourth coupon. If the bond’s yield to maturity was 3.75% when you purchased and sold the bond,
a. What cash flows will you pay and receive from your investment in the bond per $100 face value?
b. What is the internal rate of return of your investment?
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