Consider the following T-bonds, prices are taken on 10.20.2023:

Maturity	Coupon	Bid price	Ask price	Yield	Duration
5/15/2043	2.875%	70.094	70.104
5/15/2043	3.875%	87.216	87.216
8/15/2053	4.125%	85.096	85.106

1. Why are the bonds selling at discount?
2. Why are the coupon rates of the two bonds maturing in 5/15/2043 different?
3. A pension fund manager has $10m invested in bond 1, $25m invested in bond 2, and $15m in bond 3. What is the weighted average Duration of the portfolio? What will be the total change in value of his portfolio if interest rates increase by 75BP?
4. Which of the three bonds is the best choice for investment now if you expect long-term interest rates to drop?

Answer rating: 100% (QA)

Why are the bonds selling at a discount Bonds are selling at a discount when their market price is below their face value This typically occurs when t... View the full answer