You are an aggressive investor. The information for the bonds (with face value of $1,000) available on the market is as follows:

Zero-coupon bond with 25 years left to maturity

8%, 25-year bond with annual payments

Required:

(a) Given that the market interest rates are at 9 percent, calculate the current price of the bonds.

(b) You believe that market interest rates are going to decline by 2% in one year. Using present value method, calculate the expected total return in percentage for both bonds.

(c) If your estimates in Part (b) are correct, which bond would you purchase? Why? Apply the relevant properties of bond duration in your explanations.