Question
As an aggressive investor, your investment objective is to maximize capital gains. You are considering to trade bonds. The information for the bonds available on
As an aggressive investor, your investment objective is to maximize capital gains. You are considering to trade bonds. The information for the bonds available on the market is as follows:
Bond A with modified duration of 7.56 years with yield to maturity of 10%
Bond B with modified duration of 8.36 years with yield to maturity of 9%
Bond C with modified duration of 9.75 years with yield to maturity of 8%
If the bonds are alike in all other respects, determine the bond you should trade if you believe the market interest rates are going to decrease from current rate of 8% to 7.5% in the near future. Explain and provide a numerical evidence to support your answer
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