Please solve and show your steps as to how you obtained the answer.

You have a portfolio made up of equal amounts of two different types of bonds:

2-year, 12% annual coupon bonds, with a duration of 1.6 years

20-year, 2.4% annual coupon bonds, with a duration of 18.3 years.

After doing a lot of economic analysis, you are sure interest rates will rise in the following year by at least 200 basis point.

Will you:

a) sell the 2-year bonds and buy more 20-year bonds?

b) sell the 20-year bonds and buy more 2-year bonds?

Justify your strategy

A bond starts the year at a price of $895.35.

At the end of the year, the bond price is $843.45.

During the year, the bond paid two coupons of $34.00 each.

What rate of return did the bond earn during the year?

General Retail, Inc. has issued bonds that are currently trading at an YTM of 5.5%, and are rated as BBB by Standard & Poor's. However, most of their stores are located in malls and their sales results are declining.

After analyzing the company, you are certain that the bonds will be downgraded below investment grade in the next year, and will probably fall to BB or even B.

If you are right, will the bonds YTM go up, or down? Why?

General Industries, Inc. has just issued a bond with the following terms:

Face value = $1,000

Years to maturity = 15

Coupon rate = 6.4%

Coupons are paid every six months.

If the yield to maturity is 6.4%, with is the current value of this bond?

General Industries issued a bond one year ago. When issued, the bond had 15 years to maturity, and the YTM was 6.4%. Today, the YTM has gone down to 5.3%.

What is the value of the bond today?

Face value = $1,000

Years to maturity = ?

Coupon rate = 6.4%

Coupons are paid every six months.