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Assume you have a 1-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature
Assume you have a 1-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 8.6% coupon rate and pays the $86 coupon once per year. The third has a 10.6% coupon rate and pays the $106 coupon once per year. If all three bonds are now priced to yield 5% to maturity, what are their prices? (Round your answers to 2 decimal places. Omit the "$" sign in your response.) If you expect their yields to maturity to be 5% at the beginning of next year, what will their prices be then? What is your before-tax holding-period return on each bond? If your tax bracket is 30% on ordinary income and 20% on capital gains income, what will your aftertax rate of return be on each? (Round your answers to 2 decimal places. Omit the "$ & %" signs in your response.) If you expect their yields to maturity to be 4% at the beginning of next year, what will their prices be then? What is your before-tax holding-period return on each bond? If your tax bracket is 30% on ordinary income and 20% on capital gains income, what will your aftertax rate of return be on each? (Round your answers to 2 decimal places. Omit the "$ & %" signs in your response.)
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