Required: (i) Calculate the bond durations for Bond A and Bond B respectively using a table format. Show the formulas and workings in each column. (ii) Determine the investment decision based on the market expectation and your answer in part (i) above.
Required: (i) Calculate the bond durations for Bond A and Bond B respectively using a table format. Show the formulas and workings in each column. (ii) Determine the investment decision based on the market expectation and your answer in part (i) above.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Required:
(i) Calculate the bond durations for Bond A and Bond B respectively using a table format.
Show the formulas and workings in each column.
(ii) Determine the investment decision based on the market expectation and your answer in part (i) above.
Transcribed Image Text:(b)
You are a fixed-income portfolio manager in an investment company. Currently, you are
considering investing in one of the following treasury bonds:
Treasury Bond A has 10 years left to maturity, pays 3% coupon annually, and is traded
at 5% yield-to-maturity (YTM). Its par value is RM100.
Treasury Bond B has 3 years left to maturity, pays 2% coupon semi-annually, and is
traded at 3% yield-to-maturity (YTM). Its par value is RM100.
You have the following market expectation:
The economy will continue to slow down due the Covid-19 pandemic.
The Malaysian government may continue to enforce the expansionary monetary policy
by lowering the interest rate and reserve requirement.
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