Question #7: Holding Period Return (20 Points) Assume that you have a one-year investment horizon and are trying to choose among two bonds. Both have the same default risk and mature in 6 years. The first is a zero-coupon bond that pays $1000 at maturity. The second is a $1000 par value coupon bond that has a coupon rate of 6% and makes an annual coupon payment. (a) If the YTM is equal to 3.6% what is the current prices for each of the bonds? [3 Points each; 6 Points Total] (b) Suppose that the YTM next year falls to 3.2%. Calculate the one year holding period return for each of the bonds. (Hint: One year has passed since you initially purchased the bond] [7 Points each; 14 Points Total] Question #7: Holding Period Return (20 Points) Assume that you have a one-year investment horizon and are trying to choose among two bonds. Both have the same default risk and mature in 6 years. The first is a zero-coupon bond that pays $1000 at maturity. The second is a $1000 par value coupon bond that has a coupon rate of 6% and makes an annual coupon payment. (a) If the YTM is equal to 3.6% what is the current prices for each of the bonds? [3 Points each; 6 Points Total] (b) Suppose that the YTM next year falls to 3.2%. Calculate the one year holding period return for each of the bonds. (Hint: One year has passed since you initially purchased the bond] [7 Points each; 14 Points Total]