Assume you have a one-year investment horizon and are trying to choose among three bonds. All...

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Finance

Assume you have a one-year investment horizon and are trying tochoose among three bonds. All have the same degree of default riskand mature in 8 years. The first is a zero-coupon bond that pays$1,000 at maturity. The second has an 7.6% coupon rate and pays the$76 coupon once per year. The third has a 9.6% coupon rate and paysthe $96 coupon once per year.
a.
If all three bonds are now priced to yield 7.6% to maturity,what are their prices? (Do not roundintermediate calculations. Round your answers to 2decimal places.)
Zero 7.6% Coupon 9.6% Coupon
  Current prices $         $      $
b-1.
If you expect their yields to maturity to be 7.6% at thebeginning of next year, what will their prices be then? (Donot round intermediate calculations. Round youranswers to 2 decimal places.)
Zero 7.6% Coupon 9.6% Coupon
  Price one year from now $       $       $
b-2.
What is your rate of return on each bond during the one-yearholding period? (Do not round intermediatecalculations.Round your answers to 2 decimalplaces.)
Zero 7.6% Coupon 9.6% Coupon
  Rate of return %       %       %

Answer & Explanation Solved by verified expert

3.9 Ratings (794 Votes)

a Common Yield for Three Bonds 76 Common Tenure 8 years Common Par Value 1000 Zero Coupon Bond Price 1000 10768 55655 76 Coupon Bond Annual Coupon 0076 x 1000 76 Price 76 x 10076 x 1110768 1000 10768 See Answer

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Assume you have a one-year investment horizon and are trying tochoose among three bonds. All have the same degree of default riskand mature in 8 years. The first is a zero-coupon bond that pays$1,000 at maturity. The second has an 7.6% coupon rate and pays the$76 coupon once per year. The third has a 9.6% coupon rate and paysthe $96 coupon once per year.a.If all three bonds are now priced to yield 7.6% to maturity,what are their prices? (Do not roundintermediate calculations. Round your answers to 2decimal places.)Zero7.6% Coupon9.6% Coupon Current prices$ $ $ b-1.If you expect their yields to maturity to be 7.6% at thebeginning of next year, what will their prices be then? (Donot round intermediate calculations. Round youranswers to 2 decimal places.)Zero7.6% Coupon9.6% Coupon Price one year from now$ $ $ b-2.What is your rate of return on each bond during the one-yearholding period? (Do not round intermediatecalculations.Round your answers to 2 decimalplaces.)Zero7.6% Coupon9.6% Coupon Rate of return% % %