Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

i need help with c, d & e please Problem 14-10 Assume you have a 1-year investment horizon and are trying to choose among three

i need help with c, d & e please
image text in transcribed
image text in transcribed
Problem 14-10 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 9.6% coupon rate and pays the $96 coupon once per year. The third has a 116% coupon rate and pays the $116 coupon once per year a. If all three bonds are now priced to yield 5% to maturity, what are the prices of: (1) the zero-coupon bond: (1) the 9.6% coupon bond: the 11.6% coupon bond? (Round your answers to 2 decimal places.) Zero Coupon 9.6% Coupon 11.6% Coupon $ 613.91 $ 1.355.20 $ 1,509,63 Current prices b. If you expect their yields to maturity to be 5% at the beginning of next year, what will be the price of each bond? (Round your answers to 2 decimal places.) Zero Coupon 9.6% Coupon 11.6% Coupon 644 61 $ 1.326.96 $ 1,469.12 Price 1 year from now c. What is your before-tax holding-period return on each bond? (Round your answers to 2 decimal places.) Zero Coupon % 9.6% Coupon % 11.6% Coupon 9 Pre-tax rate of return c. What is your before-tax holding period return on each bond? (Round your answers to 2 decimal places.) Zero Coupon % 9.6% Coupon 11.6% Coupon Pre-tax rate of return % d. If your tax bracket is 30% on ordinary income and 18.4% on capital gains income, what will be the after-tax rate of return on each bond? (Round your answers to 2 decimal places.) Zero Coupon % 9.6% Coupon % 11.6% Coupon % After-tax rate of return e. Recalculate your answers to (b)-(d) under the assumption that you expect the yields to maturity on each bond to be 4% at the beginning of next year. (Round your answers to 2 decimal places.) Price 1 year from now Pre-tax rate of return After-tax rate of return Zero Coupon 5 702 59 14.44% % 9.6% Coupon $ 1,416.38 11.60% 8 571% 11.6% Coupon $ 1,565 09 5 %

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Understanding Terrorist Finance

Authors: T. Wittig

2011th Edition

0230291848, 978-0230291843

More Books

Students also viewed these Finance questions