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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 and mature
Assume you have a one-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 a 7.2% coupon rate and pays the $72 coupon once per year. The third has a 9.2% coupon rate and pays the $92 coupon once per year. Assume that all bonds are compounded annually. Required: a. If all three bonds are now priced to yield 7.2% to maturity, what are their prices? (Do not round intermediate calculations. Round your answers to 2 decimal places.) b. If you expect their yields to maturity to be 7.2% at the beginning of next year, what will their prices be then? (Do not round intermediate calculations. Round your answers to 2 decimal places.) c. What is your rate of return on each bond during the one-year holding period? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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