question II only

Question 3. Answer all parts of the question I. Consider the following three bonds: Bond N Bond S Bond T Par Value 1,000 1,000 1,000 Coupon 9% 6% Zero Time to Maturity 4 years Required Yield 6% 6% 6% (a) Calculate and interpret the present values of each bond. 3 years 6 years (12 marks) (b) Calculate and interpret the Macaulay Duration for each bond. (9 marks) (c) An investor decides to increase their holding of Bond N and to reduce their holding of Bond T. Comment on the investor action and his expectation for future interest rate changes. (4 marks) II. Discuss, providing examples, the three forms of market efficiency under the efficient markets hypothesis, and analyse the management strategy of (a) an active investor and (b) passive investor. (25 marks)