None Assume you have a one-year investment horizon and are trying to choose among three bonds. All have the same degree of defaultrisk and mature in 10 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 8% coupon rate and paysthe $80 coupon once per year. The third has a 10% coupon rate and pays the $100 coupon once per year. Assume that all bonds arecompounded annually.Required:a. If all three bonds are now priced to yield 8% to maturity, what are their prices? (Do not round intermediate calculations. Roundyour answers to 2 decimal places.)ZeroCurrent prices$8% Coupon463.19 $10% Coupon1,000.00 $1,134.20b. If you expect their yields to maturity to be 8% at the beginning of next year, what will their prices be then? (Do not roundintermediate calculations. Round your answers to 2 decimal places.)Zero8% CouponPrice one year from now$500.00$1,000.0010% Coupon

Step 1:a)We have to calculate the current price of the three bonds.We will use the PV function in…

Answered: Assume you have a one-year investment…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 4P

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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. Required: 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.) b. 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.) c. 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.)
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Assume you have a 1-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% coupon rate and pays the $80 coupon once per year. The third has a 10% coupon rate and pays the $100 coupon once per year.a. If all three bonds are now priced to yield 8% to maturity, what are the prices of: (i) the zero-coupon bond; (ii) the 8% coupon bond; (iii) the 10% coupon bond?b. If you expect their yields to maturity to be 8% at the beginning of next year, what will be the price of each bond?c. What is your before-tax holding-period return on each bond? d. If your tax bracket is 30% on ordinary income and 20% on capital gains income, what will be the after-tax rate of return on each bond?e. Recalculate your answers to parts (b)–(d) under the assumption that you expect the yields to maturity on each bond to be 7% at the…
Assume you have a 1-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% coupon rate and pays the $80 coupon once per year. The third has a 10% coupon rate and pays the $100 coupon once per year. 1. If all three bonds are now priced to yieid 8% to maturity, what are their prices? 2. If you expect their yields to maturity to be 8% at the beginning of next year, what will their prices be then? What is your before-tax holding-period return on each bond? If your tax bracket is 30% on ordinary income and 20% on capital gains income, what will your after-tax rate of return be on each? 3. Recalculate your answer to (2) under the assumption that you expect the yields to maturity on each bond to be 7% at the beginning of next year.
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Assume you have a 1-year investment horizon and are trying to choose among threebonds. All have the same degree of default risk and mature in 10 years. The first is azero-coupon bond that pays $1,000 at maturity. The second has an 8% coupon rateand pays the $80 coupon once per year. The third has a 10% coupon rate and paysthe $100 coupon once per year.1. If all three bonds are now priced to yield 8% to maturity, what are their prices?2. If you expect their yields to maturity to be 8% at the beginning of next year, whatwill their prices be then? What is your before-tax holding-period return on eachbond? If your tax bracket is 30% on ordinary income and 20% on capital gainsincome, what will your after-tax rate of return be on each?3. Recalculate your answer to (2) under the assumption that you expect the yields tomaturity on each bond to be 7% at the beginning of next year.
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