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Assume you have a one - year investment horizon and are trying to choose among three bonds. All have the same degree of default risk
Assume you have a oneyear investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in years. The first is a zerocoupon bond that pays $ at maturity. The second has a coupon rate and pays the $ coupon once per year. The third has a coupon rate and pays the $ coupon once per year. Assume that all bonds are compounded annually.
Required:
a If all three bonds are now priced to yield to maturity, what are their prices? Do not round intermediate calculations. Round your answers to decimal places.
b If you expect their yields to maturity to be at the beginning of next year, what will their prices be then? Do not round intermediate calculations. Round your answers to decimal places.
c What is your rate of return on each bond during the oneyear holding period? Do not round intermediate calculations. Round your answers to decimal places.
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