Suppose you purchase a $10-$year bond with $6\mathrm{.}64\%$ annual coupons. You hold the bond for $4$years$,$ and sell it immediately after receiving the fourth coupon. If the$$ bond's yield to maturity was $5\mathrm{.}17\%$ when you purchased and sold the$$ 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?

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Part $1$

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 $107\mathrm{.}42$ in Year $0$ and a cash flow of $6\mathrm{.}64$ each year from Year $1$ to Year $3.$ In Year $4,$ the cash flow is $114\mathrm{.}06.$

Years$01234$

Cash Flows$ $107\mathrm{.}42$$ $6\mathrm{.}64$$ $6\mathrm{.}64$$ $6\mathrm{.}64$$ $114\mathrm{.}06$

B$.$

The timeline starts at Year $0$ and ends at Year $4.$ The timeline shows a cash flow of minus $114\mathrm{.}06$ in Year $0$ and a cash flow of $6\mathrm{.}64$ each year from Year $1$ to Year $3.$ In Year $4,$ the cash flow is $107\mathrm{.}42.$

Years$01234$

Cash Flowsnegative $ $114\mathrm{.}06$$ $6\mathrm{.}64$$ $6\mathrm{.}64$$ $6\mathrm{.}64$$ $107\mathrm{.}42$

C$.$

The timeline starts at Year $0$ and ends at Year $4.$ The timeline shows a cash flow of minus $111\mathrm{.}26$ in Year $0$ and a cash flow of $6\mathrm{.}64$ each year from Year $1$ to Year $3.$ In Year $4,$ the cash flow is $114\mathrm{.}06.$

Years$01234$

Cash Flowsnegative $ $111\mathrm{.}26$$ $6\mathrm{.}64$$ $6\mathrm{.}64$$ $6\mathrm{.}64$$ $114\mathrm{.}06$

Your answer is correct.D$.$

The timeline starts at Year $0$ and ends at Year $4.$ The timeline shows a cash flow of $111\mathrm{.}26$ in Year $0$ and a cash flow of $6\mathrm{.}64$ each year from Year $1$ to Year $3.$ In Year $4,$ the cash flow is $114\mathrm{.}06.$

Years$01234$

Cash Flows$ $111\mathrm{.}26$$ $6\mathrm{.}64$$ $6\mathrm{.}64$$ $6\mathrm{.}64$$ $114\mathrm{.}06$

Part $2$

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

The annual rate of return of your investment is

$$

enter your response here$\%.($Round to two decimal$$ places.$)$Your company currently has $$1,000$ par, $6\mathrm{.}75\%$ coupon bonds with $10$ years to maturity and a price of $$1,072\mathrm{.}36.$ If you want to issue new $10-$year coupon bonds at par, what coupon rate do you

need to set? Assume that for both bonds, the next coupon payment is due in exactly six months.

You need to set a coupon rate of $,\%.($Round to two decimal places.$)$