Consider the following bond data: 1. Calculate the Macaulay duration of bond 1 2. You expect bond yields to rise across all maturities by 1%. What strategy will you employ in respect of bonds 2 and 3. 3. If you expect a boom and rise in yields generally combined with a reduction of the corporate bond spreads which of bonds 1 and 2 bonds would you choose to buy. Explain your reasoning. 4. Consider Bond 3, if the yield to maturity on this bond were to move downward to 13% because of a credit rating upgrade, what would be the expected percentage price change in this bond?

Bond 1 2 3 Credit rating AAA A BBB Years to maturity 8 10 7 Annual coupon 9 11 10 Macaulay duration ? 5.98 4.86 Yield to maturity 10.0 13.5 14.5 Bond 1 2 3 Credit rating AAA A BBB Years to maturity 8 10 7 Annual coupon 9 11 10 Macaulay duration ? 5.98 4.86 Yield to maturity 10.0 13.5 14.5