22 Jul IF ALL THREE BONDS ARE NOW PRICED TO YIELD 8% TO MATURITY WHAT ARE THEIR PRICES?
Assume you have a 1-year investment horizon and are trying to choose among three bonds. All have Show more 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 $1000 at maturity. The second has an 10.0% coupon rate and pays the $100 coupon once per year. The third has a 12.0% coupon rate and pays the $120 coupon once per year. a. If all three bonds are now priced to yield 8% to maturity what are their prices? (Round your answers to 2 decimal places. Omit the $ sign in your response.) Zero Coupon 10.0% Coupon 12.0% Coupon Current prices $ $ $ b. 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 aftertax rate of return be on each? (Round your answers to 2 decimal places. Omit the $ & % signs in your response.) Zero Coupon 10.0% Coupon 12.0% Coupon Current prices $ $ $ Pre-tax rate of return % % % After-tax rate of return % % % c. If you expect their yields to maturity to be 7% 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 aftertax rate of return be on each? (Round your answers to 2 decimal places. Omit the $ & % signs in your response.) Zero Coupon 10.0% Coupon 12.0% Coupon Current prices $ $ $ Pre-tax rate of return % % % After-tax rate of return % % % Show less
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