Suppose you purchase a 10-year bond with 6.7% 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 5.1% 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 annual rate of return of your investment?

a. What cash flows will you pay and receive from your investment in the bond per

$100

face value?

The cash flows from the investment are shown in the following timeline:(Round to the best choice below.)

A.The timeline starts at Year 0 and ends at Year 4. The timeline shows a cash flow of $ 108.10 in Year 0 and a cash flow of $ 6.70 each year from Year 1 to Year 3. In Year 4, the cash flow is $ 114.80.

Year

0

1

2

3

4

Cash Flows

$108.10

$6.70

$6.70

$6.70

$114.80

B.The timeline starts at Year 0 and ends at Year 4. The timeline shows a cash flow of minus $ 114.80 in Year 0 and a cash flow of $ 6.70 each year from Year 1 to Year 3. In Year 4, the cash flow is $ 108.10.

Year

0

1

2

3

4

Cash Flows

$114.80

$6.70

$6.70

$6.70

$108.10

C.The timeline starts at Year 0 and ends at Year 4. The timeline shows a cash flow of negative $ 112.29 in Year 0 and a cash flow of $ 6.70 each year from Year 1 to Year 3. In Year 4, the cash flow is $ 114.80.

Year

0

1

2

3

4

Cash Flows

$112.29

$6.70

$6.70

$6.70

$114.80

Your answer is correct.

D.The timeline starts at Year 0 and ends at Year 4. The timeline shows a cash flow of $ 112.29 in Year 0 and a cash flow of $ 6.70 each year from Year 1 to Year 3. In Year 4, the cash flow is $ 114.80.

Year

0

1

2

3

4

Cash Flows

$112.29

$6.70

$6.70

$6.70

$114.80

b. What is the annual rate of return of your investment?

The annual rate of return of your investment is ____%. (Round to one decimal place.)