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 10.0% coupon rate and pays the $100 coupon once per year. The third has a 12.0% coupon rate and pays the $120 coupon once per year. a. If all three bonds are now priced to yield 8% to maturity, what are the prices of: (i) the zero-coupon bond; (ii) the 10.0% coupon bond; (iii) the 12.0% coupon bond? (Round your answers to 2 decimal places.) Answer is complete and correct. Zero Coupon 10% Coupon 1,134.20 12% Coupon $ 1,268.40 Current prices $ 463.19 $ b. If you expect their yields to maturity to be 8% at the beginning of next year, what will be the price of each bond? (Round your answers to 2 decimal places.) Answer is complete and correct. Zero Coupon 10% Coupon $ 1,124.94 12% Coupon 1,249.88 Price 1 year from now $ 500.25 c. What is your before-tax holding-period return on each bond? (Round your answers to 2 decimal places.) Answer is complete and correct. Zero Coupon 10% Coupon 12% Coupon Pre-tax rate of return 8.00 % 8.00 % 8.00 % d. If your tax bracket is 30% on ordinary income and 18% on capital gains income, what will be the after-tax rate of return on each bond? (Round your answers to 2 decimal places.) X Answer is complete but not entirely correct. Zero Coupon 10% Coupon 12% Coupon After-tax rate of return 5.60 % 5.50 X % 5.42 % e. Recalculate your answers to (b)-(d) under the assumption that you expect the yields to maturity on each bond to be 7% at the beginning of next year. (Round your answers to 2 decimal places.) Answer is complete and correct. Zero Coupon 10% Coupon 12% Coupon $ 543.93 $ 1,195.46 $ 1,325.76 Price 1 year from now Pre-tax rate of return After-tax rate of return 17.43 % 14.22 % 13.98 % 13.33 % 10.60 % 10.33 %