Assume you have the option to buy one of three bonds. All have the same degree of default risk
and mature in 15 years. The first is a zero-coupon bond that pays $1,000 at maturity. The
second has a 7 percent coupon rate and pays the $70 coupon once per year. The third has a 9
percent coupon rate and pays the $90 coupon once per year.

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a. If all three bonds are now priced to yield 8 percent to maturity, what are their prices?

b. If you expect their yields to maturity to be 8 percent 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 percent on ordinary income and 20 percent on capital gains income, what will
your after-tax rate of return be on each? Assume you do not sell the bonds.

c. Recalculate your answer to (b) under the assumption that you expect the yields to maturity on
each bond to be 7 percent at the beginning of next year.

d. Re-do the calculations in parts b and c above, assuming you will sell the bonds at the end of the
year.

PLEASE DON'T SOLVE IT ON EXCEL, STEP-BY-STEP IS REQUIRED.

Yield to Maturity:

A bond's yield to maturity (YTM) is the inner pace of return expected for the current worth of all the future incomes of the bond (face worth and coupon installments) to approach the current bond cost. YTM expects that all coupon installments are reinvested at a yield equivalent to the YTM and that the security is held to development.            

3. Holding period return is the complete return gotten from holding a resource or arrangement of resources throughout some undefined time frame, known as the holding time frame, which is by and large communicated as a rate. Holding period return is determined based on absolute gain from the resource or portfolio. It is the gross rate of return before claiming any tax-related deductions from it. Therefore, the before-tax holding period return on each bond is the yield percent to maturity, i.e., 8%.