Question
You are considering investing in bonds over the next year, and you can invest in the following three bonds. All of these bonds have the
You are considering investing in bonds over the next year, and you can invest in the following three bonds. All of these bonds have the same risk of default and have a maturity of 10 years. The first bond is a zero-coupon bond that pays $1,000 at maturity. The par interest on the second bond is 8%, and it pays a par interest of $80 per year. The third bond has 10% par interest, and pays $100 par interest every year.
A. If all three bonds have a yield to maturity of 8%, what is their price? B. What is the price of each bond at the beginning of next year if the yield to maturity is expected to be 8%? C. If you invest in these bonds, what is the return on investment on each bond during the one-year holding period?
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