Assume you have a one-year investment horizon and are trying to
choose among three bonds. All have the same degree of default risk
and mature in 10 years. The first is a zero-coupon bond that pays
$1,000 at maturity. The second has an 8.3% coupon rate and pays the
$83 coupon once per year. The third has a 10.3% coupon rate and
pays the $103 coupon once per year. Assume that all bonds are
compounded annually.
a. If all three bonds are now priced to yield 8.3%
to maturity, what are their prices? (Do not round
intermediate calculations. Round your answers to 2
decimal places.)
Current prices: Zero=
8.3% Coupon=
10.3% Coupon=
b. If you expect their yields to maturity to be
8.3% at the beginning of next year, what will their prices be then?
(Do not round intermediate calculations.
Round your answers to 2 decimal places.)
Price one year from now:
Zero=
8.3% Coupon=
10.3% Coupon=
c. What is your rate of return on each bond during
the one-year holding period? (Do not round intermediate
calculations. Round your answers to 2 decimal
places.)
Rate of return:
Zero=
8.3% Coupon=
10.3% Coupon=
Assume you have a one-year investment horizon and are trying to choose among three bonds. All...
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