A bond portfolio manager, John, holds $10 million par value of Bond ABC and it is trading at 75% with a modified duration of 6.5. John is considering swapping out of Bond ABC and into Bond XYZ so that the Dollar Duration ($D) is the same. The price of Bond XYZ is 88% and has a modified duration of 4.

(a) How much in market value of Bond XYZ should be purchased? (12 Marks)

(b) Answer the each of the following questions (i) to (v) about selecting bonds to maximize the return for your client portfolios in terms of all these characteristics: - Duration - Coupon - Maturity - Credit rating

(i) What would you look for in a bond chosen for your client who can take high risk? (2 Marks)

(ii) What would you look for in a bond chosen for your client who can only take low risk? (2 Marks)

(iii) If you believe that interest rates will decline sharply in the future, what bond characteristics would you search for? (2 Marks)

(iv) If you believe that interest rates will rise sharply in the future, what bond characteristics would you search for? (2 Marks)

(please give correct and detail answers, and no use excel ,because have mark)( about fixed income securities)

Answer rating: 100% (QA)

a In the given case A Manager own 10 Million at Par value of Bond ABC which has a marke... View the full answer