Assume you have a one-year investment horizon and are trying to choose among t

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 10 years.
The first bond is a zero-coupon bond that pays $1000 at maturity. The second one has an 8% coupon rate and pays the $80 coupon once per year. The third
bond has a 10% coupon rate and pays the $100 coupon once per year. For parts (a) and (b) assume that there are no taxes.

(a) If all three bonds are now priced to yield 8% to maturity what are their prices?

(b) If you expect their yields to maturity to be 8% at the beginning of next year what will their prices be then? What is your before-tax holding period
return on each bond?

(c) If your tax bracket is 30% on ordinary income and 20% on capital gains income what will your after-tax rate of return be on each bond?

Hint: In computing taxes assume that the 10% coupon bond was issued at par and that the drop in price when the bond is sold at year-end is treated as a
capital loss (and not as an offset to ordinary income).