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Homework answers / question archive / 1) Your company owns the following bonds: Bond Market Value Duration A $13 million 2 B $18 million 4 ? $20 million 3 If general interest rates decrease from 8

1) Your company owns the following bonds: Bond Market Value Duration A $13 million 2 B $18 million 4 ? $20 million 3 If general interest rates decrease from 8

Finance

1) Your company owns the following bonds: Bond Market Value Duration A $13 million 2 B $18 million 4 ? $20 million 3 If general interest rates decrease from 8.5% to 8%, what is the approximate change in the $ value of the portfolio? You must show your calculation, otherwise, your mark will be deducted.

2)An investor has the following two options: a) To buy a two-year $1,000 zero-coupon bond at a market price of $860, or. b) To buy a two-year $1,000 bond with an annual interest of 3% at a market price of $900. Assuming annual coupon payments, which option do you think the investor should choose? Explain why. You must show your calculation, otherwise, your mark will be deducted.

Option 1

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