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You expect interest rates to decline over the next six months.

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You expect interest rates to decline over the next six months.;a. Given your interest rate outlook, state what kinds of bonds you want in your portfolio in terms of duration, and explain your reasoning for this;choice.;b. You must make a choice between the following three sets of noncallable bonds. For each set, select the bond that would be best for your portfolio;given your interest rate outlook and the consequent strategy set forth in Part a. In each case, briefly discuss why you selected the bond.;Set 1;Bond A;Bond B;Maturity;15;15;Coupon;10%;6%;YTM;10%;8%;Set 2;Bond A;Bond B;15;10;6%;8%;10%;10%;Set 3;Bond A;Bond B;12;15;12%;12%;12%;8%;The Francesca Finance Corporation has issued a bond with the following characteristics;a. Discuss the concept of call-adjusted duration, and indicate the approximate value (range) for it at the present time.;b. Assuming interest rates increase substantially (i.e., to 13 percent), discuss what will happen to the call-adjusted duration and the reason for the change.;c. Assuming interest rates decline substantially (i.e., they decline to 4 percent), discuss what will happen to the bonds call-adjusted duration and the reason for the;change.;d. Discuss the concept of negative convexity as it relates to this bond.;Maturity;Coupon;Yield to maturity;Callable-after 3 years;Duration to maturity;25 years;9%;9%;109;8.2 years;View Full Attachment;Additional Requirements;Min Pages: 2;Level of Detail: Show all work

 

Paper#29727 | Written in 18-Jul-2015

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