Suppose you are a private wealth manager; you have a client that has asked you to invest
Question:
Suppose you are a private wealth manager; you have a client that has asked you to invest some money for them ($2,000,000) for exactly 10 years. Based on your assessment of client's risk tolerance and risk capacity, you have determined that Investment-Grade Corporate bonds are the best fit for the client. The following corporate bonds are current being actively traded. Note: Settlement date is 4/13/2022
Bond | Coupon | Bid Price | Ask Price | Maturity | S&P Rating |
Alpha | 2.250% | 102.00 | 104.00 | 7/1/2030 | A |
Beta | 4.125% | 106.50 | 109.00 | 7/1/2051 | BBB |
Gamma | 6.500% | 85.50 | 89.00 | 7/1/2030 | C |
Delta | 9.375% | 60.25 | 65.00 | 7/1/2051 | C |
Choose appropriately from the above bond list of corporate bonds and calculate the yield-to-maturity for only the selected client-appropriate bond(s). You must show your work in Excel using the appropriate function(s).
Calculate the Macaulay Duration for only the selected client-appropriate bond(s). You must show your work in Excel using the appropriate function(s).
Calculate how much of the client's money (how many dollars) should be invested in which of these selected bonds in order to best immunize the portfolio from interest rate risk. You must show your work in Excel.
Corporate Finance A Focused Approach
ISBN: 978-1305637108
6th edition
Authors: Michael C. Ehrhardt, Eugene F. Brigham