Assume that you are managing a bond portfolio for a client with a limited technical knowledge. Assume the length of your clients investment horizon (e.g. 6 years). Assume the level of yield that your client wants to achieve in the portfolio (e.g. 4%). Collect the prices for 12 bonds of your choice that belong to the same type of issuer and geographical market (e.g. US corporates, US government, UK government etc.) and have no options attached. Bonds selected should be having a range of maturities, from shorter term to longer term. Assume that the settlement date for bonds is the date you collect the bond prices. Complete the following: a) Write a maximum two-page report/overview of the bond market your bonds are issued at (e.g. UK corporate, US government etc.) for the most recent year. (20 marks) b) Calculate accrued interest, duration, convexity, current yield and the yield to maturity measure for each of the bonds. Present and discuss these bond features in your portfolio of bonds, together with the settlement date (i.e. date you download bond price), bonds coupon, price and maturity date. If unsure of the day count convention for your market, assume actual/actual day count to complete this question. (20 marks) c) Select one bond from your sample and use it to discuss whether yield to maturity is a good approximation of investors holding period return. To complete this, assume an upward sloping yield curve over the maturity of the selected bond (e.g. spot rate for period 1 is 1.7%, for period 2 is 1.8%, for period 3 is 2.6%etc.). Calculate the holding period return during clients investment horizon, breaking it down into coupon income, reinvestment income and price appreciation/ depreciation. Present both the interest rates used in calculations and your results within the discussion. (30 marks) In the part d) that follows outline any assumptions you made to construct portfolio as realistic as possible. Discuss the composition of the portfolio. d) Using the information for 12 bonds, immunise portfolio from interest rate risk and reinvestment risk, while maintaining the level of desired yield for your client. Short-selling of bonds is not allowed. Present your portfolio composition (weights), portfolio duration, convexity and yield. Explain the benefits of immunization to the client and discuss which of your bonds have interest rate and/ or reinvestment risk. Discuss the main drawbacks associated with short-selling, that cause regulators to restrict it. (30 marks) Explain all your workings and comment on the results in the report for the client, containing the summary of all the necessary findings