9. 08: Consider a bond that promises the following cash flows. The required discount rate is 12%. 0 2 4 1 3 Year Promised Payments 160 170 180 230 You plan to buy this bond, hold it for 2 years, and then sell the bond. a What total cash will you receive from the bond after the 212 years? Assume that periodic cash flows are reinvested at 12%. b. 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 cash flow after 2 years? How does this compare to part (a)? Assuming all market interest rates are 12%, what is the duration of this bond? Solution