Calculate one year holding period return for each of bonds

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Reference no: EM131972684

Holding Period Return

Assume that you have a one-year investment horizon and are trying to choose among three bonds. All have the same default risk and mature in 7 years. The first is a zero-coupon bond that pays $1000 at maturity. The second is a $1000 par value coupon bond that has a coupon rate of 7% and makes an annualcoupon payment.

(a) If the YTM is equal to 3.8% what is the current prices for each of thebonds?

(b) Suppose that the YTM next year risesto 4.5%. Calculate the one year holding period return for each of the bonds. [Hint: One year has passed since you initially purchased the bond]

Reference no: EM131972684

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