Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 6%. You hold the bond for five years before selling it.

Problem 6-14 Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 6%. You hold the bond for five years before selling it. a. If the bond's yield to maturity is 6% when you sell it, what is the internal rate of return of your investment? b. If the bond's yield to maturity is 7% when you sell it, what is the internal rate of return of your investment? c. If the bond's yield to maturity is 5% when you sell it, what is the internal rate of return of your investment? Years to maturity Years held Coupon Par value Yield to maturity Price at original issue Years left to maturity 30 5 $0 $1,000 6% $0.00 a. If the bond's yield to maturity is 6% when you sell it, what is the internal rate of return of your investment? New yield to maturity 6% Price when sold Internal rate of return b. If the bond's yield to maturity is 7% when you sell it, what is the internal rate of return of your investment? New yield to maturity 7% Price when sold Internal rate of return c. If the bond's yield to maturity is 5% when you sell it, what is the internal rate of return of your investment? New yield to maturity 5% Price when sold Internal rate of return Requirements 1. 2. To calculate the price of the bond when it was originally issued, you will use the function PV. In cell D15, by using the function PV and cell references calculate the price of the bond when it was originally issued (1 pt.). In cell D16, by using cell references, calculate the number of years left to maturity when the bond is sold (1 pt.). 3. To calculate the price of the bond when it was sold as in part (a), you will use the function PV. In cell D22, by using the function PV and absolute and relative references, calculate the price of the bond when it was sold (1 pt.). 4. To calculate the internal rate of return of the bond as in part (a), you will use the function RATE. In cell D23, by using the function RATE and absolute and relative references, calculate the internal rate of return of the bond (1 pt.). 5. To calculate the price of the bond when it was sold as in part (b) and part (c), copy cell D22 and paste it onto cells D29 (1 pt.) and D36 (1 pt.). 6. To calculate the internal rate of return of the bond when it was sold as in part (b) and part (c), copy cell D23 and paste it onto cells D30 (1 pt.) and D37 (1 pt.)