Which of the three bonds would be the best choice

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Reference no: EM132197965

Question: Three coupon bonds with a 10% coupon rate all just sell for their face value of $1,000. The three bonds will mature in one, two, and five years, respectively. Interest rates on all these bonds are 10% when they are bought, but decline to 5% after they are purchased. Calculate the one-year rates of return on these bonds. What are the initial current yields and the one-year rates of capital gain on these bonds? Which of the three bonds would be the best choice for an investor who has a one-year holding period? Why?

Reference no: EM132197965

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