You have the following information about several bonds:

Cash Flows

Bond	Price (Year 0)	Year 1	Year 2	Year 3
A	94.34	100
B	181.68	100	100
C	262.18	100	100	100

You own bond D, trading in the same market with cash flows of identical risk as bonds A, B, and C. Bond D has cash flows of 500 in year 1, 500 in year 2, and 1000 in year 3. Someone offers to buy bond D from you at a price of $1,718.45. This potential buyer believes that this is a fair price because it implies the same yield-to-maturity as bond C. Should you sell bond D at that price? 

Explain your answer.

Answer rating: 100% (QA)

Bd 500106 500 107 2 1000 1075 3 171338 Therefore you should sell The yiel... View the full answer