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 9.8% coupon rate and pays the $98 coupon once per year. The third has a 11.8% coupon rate and pays the $118 coupon once per year.

a.	If all three bonds are now priced to yield 9% to maturity, what are their prices? (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

	Zero Coupon	9.8% Coupon	11.8% Coupon
Current prices	$	$	$

b.

If you expect their yields to maturity to be 9% 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.)

	Zero Coupon	9.8% Coupon	11.8% Coupon
Current prices	$	$	$
Pre-tax rate of return	%	%	%
After-tax rate of return	%	%	%

c.

If you expect their yields to maturity to be 8% 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.)

	Zero Coupon	9.8% Coupon	11.8% Coupon
Current prices	$	$	$
Pre-tax rate of return	%	%	%
After-tax rate of return	%	%	%