You are a manager for the bond portfolio of a superannuation fund. The policies of the fund allow for the use of active strategies in managing the bond portfolio. It appears that due to the relatively high inflation among other factors, the Central Bank of Australia, in an effort to control rising prices, is moving towards a tighter monetary policy.

For each of the situations below, state which bond you would prefer and briefly justify your answer in each case.

a) A 3% coupon non-callable bond due in 20 years.

OR

A 6% coupon non-callable bond due in 20 years.

b) Origin company's 4.50% coupon, rated AAA due in 2040 and priced at 93.53 to yield 5.02% to maturity.

OR

AGL company's 5.50% coupon, rated Baa due in 2040 and priced at 95.94 to yield 5.85% to maturity.

c) Vale Company 3.75% coupon, rated Baa due in 2040 and callable at 105. 2

OR Vale Company 7.75% coupon, rated Baa due in 2040 and callable at 105.

d) Origin Energy Company 3.50% coupon, non-callable bond rated AAA due in 2026 and priced at 97.28 to yield 4.02% to maturity.

OR

AGL Limited 4.05% coupon, callable bond, rated AAA due in 2026 and priced at 97.43 to yield 4.55% to maturity.

e) Santos Limited Company 3.50% coupon bond rated A due in 2026 and priced at 97.28 to yield 4.02% to maturity.

OR

Woodside Petroleum 4.05% coupon bond, rated A due in 2046 and priced at 92.47 to yield 4.55% to maturity.