Assume you have a 1-year investment horizon and are trying to choose between two bonds.

Both have the same degree of default risk and mature in 10 years. The first has an 8% coupon rate and pays coupon once per year. The second has a 10% coupon rate and pays

the coupon once per year.

(a.) If both bonds are now priced to yield 8% to maturity, what are their prices?

(b.) If you expect their yields to maturity to be 7% at the beginning of next year, what will their prices be then? What is your holding period return on each bond?