What will their prices be

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Question - 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 9 years. The first is a zero-coupon bond that pays $1,000 at maturity. The second has an 7.4% coupon rate and pays the $74 coupon once per year. The third has a 9.4% coupon rate and pays the $94 coupon once per year.

a. If all three bonds are now priced to yield 7.4% to maturity, what are their prices?

b-1. If you expect their yields to maturity to be 7.4% at the beginning of next year, what will their prices be then?

b-2. What is your rate of return on each bond during the one-year holding period?

Reference no: EM132929191

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