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This a multiple question: " Ms


This a multiple question: " Ms. Alumn is the portfolio manager for a large insurance company. She is considering investing $1 million to purchase the bonds of Patriot Enterprises, Inc. Can you please answer A, B, and C, please? Do not do question 5. I did question 5 already. The questions are pulled from the images. The second image is a footnote.


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4. Ms. Alumm is the portfolio manager for a large insurance company. She isconsidering investing $1 million to purchase the bonds of Patriot Enterprises, Inc. [A] All of Patriot‘s bonds have market prices that imply a yield to maturity of 8% "bond equivalent yield" (that is, 4% every 6-month period).1 Each Patriot bond is described here, based on a$1,000 face value (par value), which is the promised payment at maturity. 0 Bond A has ?ve years until maturity and pays a 9% coupon yield ($45 every 6 monthson a $1,000 face value bond). 0 Bond B has ten years until vmaturity, pays an 8% coupon yield ($40 semiannualpayments), and is being offered in a private placement at par. 0 Bond C is a zero-coupon bond that pays no explicit interest, but will pay the faceamount of $1,000 per bond at maturity in ten years. At what price should each bond sell currently? [B] Ms. Alumm realizes that in addition to determining the current prices of these bonds, she would also like to know how these prices might respond to changing interest rates once her companyhas purchased them. After purchasing the bonds at an 8% bond-equivalent yield, what would happen to the price ofeach band, and how much money would the company make if market yields on Patriot bonds fall to 6% .7. . . riseto 10%? [C] As an alternative, Ms. Alumm has been invited to invest $1 million in a private placement of a 10—year Eurobond2 of a second ?rm, Nationaliste, S.A. Nationaliste bonds are similar in risk to"Bond B" above: they promise an 8% coupon yield for 10 years, but coupons are paid annually, notsemiannually. The Nationaliste bonds are priced at a 1% discount from par, or $990 per $1,000 facevalue. What yield to maturity is implied by the Nationaliste Eurobond? Compare this yield to the 8% “bond—equioalent yield“ of the Patriot semiannual coupon bond (Bond 8) above. What should Ms. Alumm do?

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