Assume you have a one-year investment horizon and are trying to choose among three bonds. All have
Question:
Assume you have a one-year investment horizon and are trying to choose among three bonds. All have the same degree of default risk and mature in 8 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 8.2% coupon rate and pays the $82 coupon once per year. The third has a 10.2% coupon rate and pays the $102 coupon once per year. Assume that all bonds are compounded annually.
a. If all three bonds are now priced to yield 8.2% to maturity, what are their prices? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Zero | 8.2% Coupon | 10.2% Coupon | |
Current prices | $________ | $______ | $_______ |
b-1. If you expect their yields to maturity to be 8.2% at the beginning of next year, what will their prices be then? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Zero | 8.2% Coupon | 10.2% Coupon | |
Prices one year from now | $_______ | $_______ | $______ |
b-2. What is your rate of return on each bond during the one-year holding period? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Zero | 8.2% Coupon | 10.2% Coupon | |
Rate of return | ______% | _______% | _______% |