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 8 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has a 7.3% coupon rate and paysthe $73 coupon once per year. The third has a 9.3% coupon rate and pays the $93 coupon once per year. Assume that all bonds arecompounded annually.Required:a. If all three bonds are now priced to yield 7.3% to maturity, what are their prices?Note: Do not round intermediate calculations. Round your answers to 2 decimal places.Zero7.3% Coupon 9.3% CouponCurrent pricesb. If you expect their yields to maturity to be 7.3% at the beginning of next year, what will their prices be then?Note: Do not round intermediate calculations. Round your answers to 2 decimal places.Zero7.3% Coupon 9.3% CouponPrice one year from nowc. What is your rate of return on each bond during the one-year holding period?Note: Do not round intermediate calculations. Round your answers to 2 decimal places.ZeroRate of return7.3% Coupon 9.3% Coupon

The problem involves the determination of the bond price or bond value. Bond valuation is a…

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 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 7.6% coupon rate and pays the $76 coupon once per year. The third has a 8.6% coupon rate and pays the $86 coupon once per year. a. If all three bonds are now priced to yield 6% to maturity, what are the prices of: (i) the zero-coupon bond; (ii) the 7.6% coupon bond; (iii) the 8.6% coupon bond? Answer to a Current Prices Zero Coupon= $558.39 7.6% = $1117.76 8.6%= $1191.36 Need answers to part d and e
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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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Suppose you purchase a 10-year bond with 6% annual coupons. You hold the bond for fouryears, and sell it immediately after receiving the fourth coupon. If the bond’s yield to maturitywas 5% when you purchased and sold the bond,a. What cash flows will you pay and receive from your investment in the bond per $100 face value?b. What is the internal rate of return of your investment?
Please show how to work this out.
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