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 11.6% 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: (i) the zero-coupon bond; (ii) the 9.6% coupon bond; (ii) the 11.6% coupon bond? (Round your answers to 2 decimal places.) Current prices Zero Coupon Answer is complete and correct. 9.6% Coupon 11.6% Coupon $ 613.91 $ 1,355.60 $ 1,509.63 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.) Answer is complete and correct. 11.6% Coupon Zero Coupon 9.6% Coupon Price 1 year from 644.61 $ 1,326.96 $1,469.12 now c. What is your before-tax holding-period return on each bond? (Round your answers to 2 decimal places.) Answer is complete but not entirely correct. Zero Coupon Pre-tax rate of return 702.59 % 9.6% Coupon 1,416.38 % 11.6% Coupon 1,565.09 % 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.) Answer is complete but not entirely correct. Zero Coupon After-tax rate of retum 11.56 % 9.6% Coupon 11.60% 11.6% Coupon 11.36 % 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.) Zero Coupon 9.6% Coupon 11.6% Coupon Price 1 year from now Pre-tax rate of return % % % After-tax rate of return % % %