Question
As an aggressive investor, your investment objective is to maximize capital gains. You are considering the purchase of a bond that would meet your objective.
As an aggressive investor, your investment objective is to maximize capital gains. You are considering the purchase of a bond that would meet your objective. The information for the bonds available on the market is as follows:
Bond A with duration of 2.45 years with yield to maturity of 6.5%
Bond B with duration of 9.30 years with yield to maturity of 10%
Bond C with duration of 8.75 years with yield to maturity of 5.75%
If the bonds are alike in all other respects, determine the bond you should purchase if you feel the market interest rates are going to decline by 0.25% in the near future. Explain and provide a numerical evidence to support your answer.
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