## Question

###### Assume you have a 1-year investment horizon and are trying to choose among three bonds. All...

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 $100 coupon once per year. a. If all three bonds are now priced to yield 8% to maturity, what are their prices? (Round your answers to 2 decimal places. Omit the "$" sign in your response.) 10% Coupon Current prices Zero Coupon $ 8% Coupon $ 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 "$& %" signs in your response.) Zero Coupon 8% Coupon 10% Coupon Current prices Pre-tax rate of return After-tax rate of return c. If you expect their yields to maturity to be 7% at the beginning of next year, what will their prices be then? What is your before-tax holding-period return on each bond? If your tax bracket is 30% on ordinary income and 20% on capital gains income, what will your aftertax rate of return be on each? (Round your answers to 2 decimal places. Omit the "$& %" signs in your response.) Zero Coupon 8% Coupon 10% Coupon Current prices Pre-tax rate of return After-tax rate of return

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