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Assume you have a 1-year investment horizon and trying to choose among three bonds. All have the same degree of default risk and mature in
Assume you have a 1-year investment horizon and trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. Which of the following bonds would you choose if you expect the yields to go down to 7 percent one year from now after the coupon payment and want to maximize your 1-year return?
A 9% annual coupon bond currently priced to yield 8%
A zero-coupon bond currently priced to yield 8%
A 6% coupon bond currently priced to yield 8%
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