Xpord University has 10 million rupees in its consolidated fund. Xpord has hired your investment firm to manage the above fund. You work in the bond research department of the investment firm. And suppose that the portfolio manager has asked you to evaluate several bonds for potential purchase. The economic team of your investment firm has updated its economic forecasts for the next five years and those details are given below. Real risk-free rate :1% Annual average of expected inflation rate for the next 5 years: 1% AAA- Default risk premium:1% BBB-Default risk premium: 2% BB- Default risk premium: 3% AAA-Liquidity risk premium: 0.6% BBB-Liquidity risk premium :1% BB-Liquidity risk premium :1.8% Treasury Liquidity premium: 0% Maturity risk premium: 0.8 % per year Bond Annual Coupon Rate Frequency of Coupon Payment Issuer Maturity Bond Rating Market Price (Rs.) A 5% Annual Government 5 - 800 B 8% Annual Corporate 5 BBB 870 C 6% Annual Corporate 3 AAA 895 D 9% Semi- Annual Corporate 4 BB 930 The required rate of return will be calculated using following formula; Required rate of return = Real risk-free rate + Inflation Premium + Default Risk Premium + Liquidity premium + Maturity Risk Premium The firm calculates the Inflation Premium based on following formula; Inflation Premium = (T-1) Annual average of expected inflation Where, T = Maturity period in years You are required to analyze the bonds and answer the following questions; i. The portfolio manager wants you to analyze above bonds and complete the following table (show all calculations). Further you are required to recommend witch bond/s to buy. Bond Current yield Require rate of return Yield to maturity Intrinsic value A B C D ii. The portfolio manager is worried that the economy may enter a recession in 2021 with the covid -19 situation. Which bond would have the least risk in this scenario? Which bond would have the most risk? Why? iii. The portfolio manager has asked you to identify any bonds that minimize the Reinvestment Risk. Which bond do you select? Justify your selection.