James is a bond portfolio manager that has recently received an additional $100,000 from investors and needs to decide what securities should be purchased for his fixed income portfolio. Currently James is worried about the economic outlook, interest rates are at all-time lows, the government has implemented several fiscal and monetary stimulus programs and unemployment is still not back to the pre-COVID levels. Credit quality has also become a big focus in the fixed income market. On the positive side, inflation is well below the government target rate of 2%. Below are the following bond investments James is considering. A 6.5% semi-annual, $100,000 Government of Canada bond with 8 years remaining until maturity that is currently trading at 101.8 A 90-day Government of Alberta short term note (similar to T-bills) with a par value of $100,000 trading a current price of 99.2. A $100,000 3-year semi-annual, 5.5% BCE Corporate bond, trading at a price of 98.7. Questions:

Calculate the yield to maturity of each bond.

If a COVID vaccine is approved and distributed, what bond do you think would perform the worst?

What would happen to the BCE bond price and yield if a credit rating agency downgraded its credit rating, and explain why?

What bond would you expect to have the greatest duration and why?