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QUESTION 28 Suppose you have a 5 year investment horizon and you are considering one of the following three bonds: Bond Duration Maturity Bond 1

QUESTION 28

  1. Suppose you have a 5 year investment horizon and you are considering one of the following three bonds:

    Bond

    Duration

    Maturity

    Bond 1

    8 years

    10 years

    Bond 2

    5 years

    7 years

    Bond 3

    3 years

    6 years

If you believe interest rates will increase and you wish to earn more than the promised yield which of the three bonds above should you choose? Explain why in terms of the change in sale price and reinvestment income.

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