Question 9 (7.5 points): Alan Greenspan is your colleague and he is managing a portfolio of U.S. bonds. Following is each bond's relevant information (all bonds are semi-annual bonds) Bond #1 has 0% coupon rate, 12 years to maturity, 4.5% yield to maturity and $1,000 par value. The effective life of this bond is 12 years. Bond #2 has 3% coupon rate, 5 years to maturity, 6% yield to maturity and $1,000 par value. The effective life of this bond is 4.65 years. Bond #3 has 2% coupon rate, 10 years to maturity, 3.5% yield to maturity and $1,000 par value. The effective life of this bond is 9.03 years. In anticipation of another potential U.S. economy downturn in Winter 2021 in which rates are expected to fall, Alan made the following statements in a memo to his clients: Statement #1: we suggest that our clients investing more in bond #1 and bond #3. Statement #2: Given a 1% potential decrease in yield, we expect that the price of bond #1 will increase by 12%." Statement #3: Similarly, we expect the price of bond #3 will increase by 8.88%. Critically evaluate Alan's comments. Discuss whether EACH comment is correct and more importantly WHY (or WHY NOT)? Question 9 (7.5 points): Alan Greenspan is your colleague and he is managing a portfolio of U.S. bonds. Following is each bond's relevant information (all bonds are semi-annual bonds) Bond #1 has 0% coupon rate, 12 years to maturity, 4.5% yield to maturity and $1,000 par value. The effective life of this bond is 12 years. Bond #2 has 3% coupon rate, 5 years to maturity, 6% yield to maturity and $1,000 par value. The effective life of this bond is 4.65 years. Bond #3 has 2% coupon rate, 10 years to maturity, 3.5% yield to maturity and $1,000 par value. The effective life of this bond is 9.03 years. In anticipation of another potential U.S. economy downturn in Winter 2021 in which rates are expected to fall, Alan made the following statements in a memo to his clients: Statement #1: we suggest that our clients investing more in bond #1 and bond #3. Statement #2: Given a 1% potential decrease in yield, we expect that the price of bond #1 will increase by 12%." Statement #3: Similarly, we expect the price of bond #3 will increase by 8.88%. Critically evaluate Alan's comments. Discuss whether EACH comment is correct and more importantly WHY (or WHY NOT)