Consider a bond that promises the following cash flows. The yield to maturity is 12%. You plan to buy this bond, hold it for 2.5 years, and then sell the bond. Solve the questions a, b, c and fill in the cells highlighted in Yellow. Year 1 2 3 4 No. of Years Promised Payments 1601 1701 180 230 2.5 a.What total cash will you receive from the bond after the 2.5 years? Assume that periodic cash flows are reinvested at 12%. Rate 12% Year 0 FV/PV of cash flow at T=2.5 Total Cash flow b.if immediately after you buy this bond all market interest rates drop to 11% (including your reinvestment rate), what will be the impact on your total cash flow after 2.5 years? Rate 11% Year 0 1 2 3 FV/PV of cash flow at T=2.5 Total Cash flow c. Assuming all market interest rates are 12%, what is the duration of this bond? Rate 129 Year Payments PV of Payments Time Weighted PV Time Weighted PV of Payments of Payments Divided by Price 1 2 3 4 Sum Consider a bond that promises the following cash flows. The yield to maturity is 12%. You plan to buy this bond, hold it for 2.5 years, and then sell the bond. Solve the questions a, b, c and fill in the cells highlighted in Yellow. Year 1 2 3 4 No. of Years Promised Payments 1601 1701 180 230 2.5 a.What total cash will you receive from the bond after the 2.5 years? Assume that periodic cash flows are reinvested at 12%. Rate 12% Year 0 FV/PV of cash flow at T=2.5 Total Cash flow b.if immediately after you buy this bond all market interest rates drop to 11% (including your reinvestment rate), what will be the impact on your total cash flow after 2.5 years? Rate 11% Year 0 1 2 3 FV/PV of cash flow at T=2.5 Total Cash flow c. Assuming all market interest rates are 12%, what is the duration of this bond? Rate 129 Year Payments PV of Payments Time Weighted PV Time Weighted PV of Payments of Payments Divided by Price 1 2 3 4 Sum