Assume you have a one-year investment horizon and are trying to choose among thr

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 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 8.9% coupon rate and pays the $89 coupon once per year. The third has a 10.9% coupon rate and pays the $109 coupon once per year.

If all three bonds are now priced to yield 8.9% to maturity, what are their prices? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

If you expect their yields to maturity to be 8.9% at the beginning of next year, what will their prices be then? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

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.)

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 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 8.9% coupon rate and pays the $89 coupon once per year. The third has a 10.9% coupon rate and pays the $109 coupon once per year.

Explanation / Answer

bond 1 bond 2 bond 3 returns after one year 1000 1089 1109 discount rate 1.089 1.089 1.089 price of bond 918.2736455 1000 1018.365473 answer to b price of bond at the begenining of the year 918.2736455 1000 1018.365473 no change in value as these prices would be the same as there is no change invalue of currency in the begenining of the year answer to b2 rate of return can not be identified because issue price is not given 9% 10.90%

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