please type the answer by computer, so i can see it clearly, thank you Because of the economic downturn, your financial advisor predicts interest rates to decline this year Your parents decide to acquire a bond as a main source of income as well as a way to profit from the investment After visiting the banks website, they are interested to buy ONE of the 2 bonds below with yield to maturity of 5 and par value of $1,000 Question 1(a) Which ONE they should buy Explain with calculations 1(b) After your parents bought bond in 1(a), the bond yield decreases by 30 basis points immediately because the central bank cuts interest rate Calculate the new bond price based on duration A B Bond Coupon rate Time to maturity 0 6 (paid annually) 3 years 1 year A B Bond Coupon rate Time to maturity 0 6 (paid annually) 3 years 1 year

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Oct 02, 2024

please type the answer by computer, so i can see it clearly, thank you!!! Because of the economic downturn, your financial advisor predicts interest rates

please type the answer by computer, so i can see it clearly, thank you!!!

Because of the economic downturn, your financial advisor predicts interest rates to decline this year. Your parents decide to acquire a bond as a main source of income as well as a way to profit from the investment. After visiting the banks website, they are interested to buy ONE of the 2 bonds below with yield to maturity of 5% and par value of $1,000:

image text in transcribed

Question:

1(a) Which ONE they should buy? Explain with calculations.

1(b) After your parents bought bond in 1(a), the bond yield decreases by 30 basis points immediately because the central bank cuts interest rate. Calculate the new bond price based on duration.

A B Bond Coupon rate Time to maturity 0% 6% (paid annually) 3 years 1 year A B Bond Coupon rate Time to maturity 0% 6% (paid annually) 3 years 1 year