Question
You are working as an investment advisor. On December 4, data released by the Labor Department indicated that U.S. job growth was slowing (i.e., the
You are working as an investment advisor. On December 4, data released by the Labor Department indicated that U.S. job growth was slowing (i.e., the U.S. economy was becoming weaker). You expect that this slowing growth in the U.S. economy will motivate the Fed to lower interest rates.
You know that a major client must choose between two bond investments:
Bond A: Matures in 10 years, pays a coupon rate of 6.09%
Bond B: Matures in 10 years, pays a coupon rate of 4.25%
Both bonds are from firms in similar industries and have similar bond ratings.
If we expect tomorrows interest rates to be lower, which bond should your client buy today? Explain using no more than 50 words.
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